UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by a Party other than the Registrant [ ]
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Filed by the Registrant [X]
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Check the appropriate box:
[X]
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
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[ ]
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to §240.14a-12
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SPHERE 3D CORP.
(Name
of Registrant as Specified In Its Charter)
(Name of Person(s) Filing
Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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No fee required.
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Fee computed on table below per Exchange Act
Rules 14a-6(i)(1) and 0-11
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(1)
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Title of each class of securities to which
transaction applies:
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Common
Shares, without par value per share
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(2)
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of
transaction computed pursuant to Exchange Act Rule 0-11 (set forth the
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amount
on which the filing fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of
transaction:
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$45,000,000
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(5)
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Total fee paid:
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$5,602.50
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[ ]
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Fee paid previously with preliminary materials.
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[ ]
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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(3)
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Filing Party:
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(4)
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Date Filed:
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Preliminary Proxy Statement - Subject to
Completion
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SPHERE 3D CORP.
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125 South Market Street
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San Jose, California 95113
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, 2018
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Dear Shareholder:
You are cordially invited to
attend a special meeting of the shareholders of Sphere 3D Corp. (the
Company
or
Sphere 3D
), which will be held at Cityview Plaza,
100 West San Fernando Street, Suite 340, San Jose, CA 95113, United States of
America, on , , 2018 at 9:00 a.m. (Pacific Time). Only shareholders of record at
the close of business on , 2018 are entitled to notice of, and to vote at, the
special meeting or any adjournment or postponement thereof (the
Special
Meeting
).
At the Special Meeting, you will be
asked:
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1.
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to consider and, if advisable, pass a special resolution
approving the sale by Sphere 3D of all of the shares of its subsidiary
Overland Storage, Inc. (the
Share Purchase
);
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2.
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to consider and, if advisable, pass a special resolution
approving the change of the name of the Company to HVE ConneXions, Inc.
(the
Name Change
); and
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3.
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To transact any other business as may properly come
before the Special Meeting or any adjournments or postponements of the
Special Meeting.
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After careful consideration, our
board of directors (i) upon the unanimous recommendation of a special committee
comprised of three independent directors (the
Special Committee
), has
unanimously determined (with Eric Kelly, Chairman and Chief Executive Officer of
Sphere 3D, recusing himself from the deliberations and voting) that the Share
Purchase is advisable and is fair to, and in the best interests of, the Company
and its shareholders, and (ii) has unanimously determined that the Name Change
is advisable and in the best interests of the Company and its shareholders. The
attached proxy statement contains a detailed discussion of the background of and
reasons for the Share Purchase and the other business to be conducted at the
Special Meeting. We encourage you to read the entire proxy statement carefully
and in its entirety.
The Share Purchase may be deemed
to constitute a sale of substantially all of the assets of Sphere 3D and will
result in Sphere 3D no longer owning Overland Storage, Inc. (
Overland
or
Overland Storage
) or carrying on an ongoing data protection and
archive business. If Sphere 3Ds shareholders do not approve the Share Purchase
or if the conditions to closing set forth in the related share purchase
agreement entered into on February 20, 2018, by and among the Company, Silicon
Valley Technology Partners LLC, an entity established and controlled by Eric
Kelly, and Overland (the
Share Purchase Agreement
), are not satisfied
or waived, the completion of the Share Purchase will not occur and Sphere 3D
will continue to own and manage Overland.
The Special Committee retained
Roth Capital Partners, LLC (
Roth Capital
) to, among other things,
provide an opinion as to the fairness, from a financial point of view, of the
Share Purchase to the Company. Roth Capital provided an opinion to the effect
that, as of February 19, 2018, and subject to the scope of review, assumptions,
qualifications and limitations set forth therein, the purchase price to be
received by the Company pursuant to a near final version of the proposed Share
Purchase Agreement is fair, from a financial point of view, to the Company.
The Sphere 3D board of
directors (i) upon the unanimous recommendation of the Special Committee,
unanimously (with Eric Kelly recusing himself from the deliberations and voting)
approved the Share Purchase and recommended the approval of the Share Purchase
based upon the totality of the information
presented to and considered by it, as described in the
accompanying proxy statement, and (ii) unanimously approved the Name Change and
recommended the approval of the Name Change, as described in the accompanying
proxy statement.
Your vote is very important
to us
. Whether or not you plan to attend the Special Meeting, please
complete, sign, date and return the enclosed form of proxy (or voting
instruction form) as soon as possible to ensure your representation at the
Special Meeting.
If you complete, sign, date and return your form of proxy
without indicating how you wish to vote, your proxy will be counted as a vote in
favor of the Share Purchase.
If you are a registered
shareholder (that is, if your shares are registered with us in your own name),
then you may vote electronically via the Internet by following the instructions
included in the proxy statement and with your form of proxy. Shareholders with
shares registered directly with our transfer agent, TSX Trust Company, may
choose to vote those shares via the Internet at www.voteproxyonline.com.
We look forward to seeing you at
the Special Meeting. Thank you in advance for your cooperation and continued
support.
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By order of the Special
Committee,
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Dated:
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, 2018
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The Special Committee
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SPHERE 3D CORP.
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125 South Market Street
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San Jose, California 95113
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____________________________
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
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To be held on
, 2018
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____________________________
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The special meeting of
shareholders of Sphere 3D Corp. (
Sphere 3D
or the
Company
)
will be held at Cityview Plaza, 100 West San Fernando Street, Suite 340, San
Jose, CA 95113, United States of America, on , , 2018 at 9:00 a.m. (Pacific
Time) (the
Special Meeting
) for the following purposes:
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1.
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To consider and, if advisable, pass with or without
variation, a special resolution approving the sale of all of the shares of
Overland Storage, Inc., which may be deemed to constitute a sale of
substantially all of the assets of Sphere 3D in accordance with Section
184(3) of the
Business Corporations Act
(Ontario), as more
particularly described in the Companys proxy statement (the
Share
Purchase
);
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2.
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To consider and, if advisable, pass with or without
variation, a special resolution amending the Company's articles to change
the name of the Company to HVE ConneXions, Inc., as more particularly
described in the Company's proxy statement (the
Name Change
);
and
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3.
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To transact any other business as may properly come
before the Special Meeting or any adjournments or postponements of the
Special Meeting.
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The Share Purchase will be
determined by at least (i) 66 2/3% of the votes cast by shareholders represented
in person or by proxy at the Special Meeting, and (ii) a simple majority of the
votes cast by the minority shareholders (as described in the proxy statement for
the Special Meeting) represented in person or by proxy at the Special Meeting.
The Name Change will be determined by at least 66 2/3% of the votes cast by
shareholders represented in person or by proxy at the Special Meeting. The
Companys by-laws provide that a quorum at the Special Meeting shall consist of
at least 2 persons present and holding or representing by proxy not less than
25% of the total number of outstanding common shares having voting rights at the
Special Meeting.
The Board of Directors of the
Company has fixed the close of business on , 2018 as the record date for the
determination of shareholders entitled to notice of and to vote at the Special
Meeting and at any adjournment or postponement thereof.
Particulars of the foregoing
matters are described in further detail in the accompanying proxy statement and
management information circular dated , 2018 (the
Proxy Statement
),
under the sections identified as such. A form of proxy (or a voting information
form) also accompanies this Notice of Special Meeting and the Proxy Statement.
Only shareholders of record at the close of business on , 2018 will be entitled
to receive notice of, and to vote at, the Special Meeting or any adjournment
thereof.
Please review the Proxy Statement
carefully and in full prior to voting in relation to the matters set out above
as the Proxy Statement has been prepared to help you make an informed decision
on such matters.
A shareholder may attend the
Special Meeting in person or may be represented by proxy. Shareholders who are
unable to or do not wish to attend the Special Meeting in person are requested
to date and sign the enclosed form of proxy promptly and return it to TSX Trust
Company by one of the following methods:
INTERNET
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Go to www.voteproxyonline.com and enter the 12
digit control number included on the proxy or voting instruction form
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FACSIMILE
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(416) 595-9593
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MAIL or HAND DELIVERY
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TSX TRUST COMPANY
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Attention: Proxy Department
Suite 301 100 Adelaide Street West
Toronto, Ontario, M5H 4H1
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To be used at the Special
Meeting, proxies must be received by TSX Trust Company not fewer than 48 hours
(excluding Saturday, Sunday and statutory holidays in the province of Ontario)
preceding the Special Meeting or an adjournment or postponement of the Special
Meeting. The Chairman of the Special Meeting may waive the proxy cut-off without
notice. If a registered shareholder receives more than one form of proxy because
such shareholder owns shares registered in different names or addresses, each
form of proxy should be completed and returned.
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By order of the Board of Directors,
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KURT L. KALBFLEISCH
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Dated:
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, 2018
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Secretary
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SPHERE 3D CORP.
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125 South Market Street
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San Jose, California 95113
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_____________________________
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PROXY STATEMENT AND MANAGEMENT INFORMATION
CIRCULAR
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SUMMARY TERM SHEET
In this proxy statement and
management information circular (the
Proxy Statement
),
(i)
Sphere 3D
,
Company
,
Seller
we
,
our
or
us
refer to Sphere 3D
Corp., (ii) the
Board
or the
Board of
Directors
refer to the board of directors of Sphere 3D, (iii)
Special Committee
refers to the special committee of the
Board of Directors comprised of three independent directors of Sphere 3D, (iv)
Purchaser
refers to Silicon Valley Technology Partners
LLC, (v)
Overland
or
Overland
Storage
refer to Overland Storage, Inc., a wholly owned subsidiary
of Sphere 3D Corp., (vi)
Roth Capital
refers to Roth
Capital Partners, LLC, the financial advisor to the Special Committee, (vii)
Share Purchase Agreement
refers to the Share Purchase
Agreement dated February 20, 2018 entered into among the Company, Overland
Storage and Purchaser attached as Annex A to this Proxy Statement, as it may be
amended from time to time, (viii)
Share Purchase
refers
to the sale of all of the outstanding shares of Overland Storage as contemplated
in the Share Purchase Agreement and further detailed in this Proxy Statement,
(ix)
Special Meeting
refers to the special meeting of the
Companys shareholders to be held at Cityview Plaza, 100 West San Fernando
Street, Suite 340, San Jose, CA 95113, United States of America, on , , 2018 at
9:00 a.m. (Pacific Time), and (x) all monetary values are expressed in United
States currency and all references to dollars or $ are references to the
lawful currency of the United States.
This summary term sheet
highlights selected information included elsewhere in this Proxy Statement
related the Share Purchase pursuant to the terms and conditions of the Share
Purchase Agreement attached as Annex A to this Proxy Statement and available on
EDGAR at www.sec.gov and on SEDAR at www.sedar.com. We encourage you to read the
Share Purchase Agreement carefully and in its entirety.
This summary term sheet may
not contain all of the information that is important to you. To understand the
Share Purchase Agreement more fully and for a more complete description of the
legal terms of the Share Purchase, you should carefully read this entire Proxy
Statement, and the Annexes to this Proxy Statement and the documents
that we refer to in this Proxy Statement. Each item in this summary term sheet
includes page references directing you to a more complete description of that
item in this Proxy Statement.
Date and Time:
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, 2018
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9:00 a.m. Pacific
Time
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Location:
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Cityview Plaza,
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100 West San Fernando Street, Suite 340
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San Jose, California 94113, United States
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of America
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The Companies
The Parties to the Share Purchase (see page 22)
Sphere 3D Corp.
Sphere 3D was incorporated under
the
Business Corporations Act
(Ontario) (the
OBCA
) and delivers
data management and desktop and application virtualization solutions. Our common
shares are listed on The NASDAQ Capital Market under the symbol ANY (the
Common Shares
). We have a global presence and maintain offices in
multiple locations. Executive offices and our primary operations are conducted
from our San Jose and San Diego, California locations. Our main office is
located at 9112 Spectrum Center Blvd., San Diego, CA 92123, United States of
America.
Purchaser
Silicon Valley Technology
Partners LLC is a Delaware limited liability company that was formed solely for
the purpose of completing the Share Purchase. To date, Purchaser has not carried
on any activities other than those related to its formation and completing the
transactions contemplated by the Share Purchase Agreement. As of the date
hereof, Eric Kelly, Chairman and Chief Executive Officer of the Company,
beneficially owns all of the shares of Purchaser. It is anticipated that
following the date hereof, but prior to the closing of the Share Purchase (the
Closing
), additional persons and/or entities will invest in Purchaser
through debt or equity investments or a combination of both. Following the Share
Purchase, Mr. Kelly will serve as the Chief Executive Officer of Purchaser. It
is currently anticipated that Purchaser will offer to Kurt L. Kalbfleisch, Chief Financial Officer of the Company, a position to serve as
the Chief Financial Officer of Purchaser, and will offer Jenny Yeh, General
Counsel of the Company, a position to serve as the General Counsel of Purchaser.
As of the date hereof, the compensation arrangements of Mr. Kelly, Mr.
Kalbfleisch and Ms. Yeh with Purchaser have not been determined.
1
The Share Purchase
The Share Purchase (see page 22)
If the Share Purchase is approved
by the holders of Common Shares (the
Shareholders
) as contemplated
herein and the other conditions to closing are satisfied or waived, Purchaser
will purchase the shares of Overland Storage from the Company for a total
purchase price of $45.0 million in cash (the
Purchase Price
), subject
to a working capital adjustment. In addition, pursuant to the Share Purchase
Agreement, in no event will the working capital adjustment cause an adjustment
to the Purchase Price if, after such adjustment, the Company would have less
than a $2.0 million of working capital balance after the working capital
adjustment is made. For more information, see The Share Purchase
AgreementPost-Closing Purchase Price Adjustment.
Prior to the Closing, the
Company will cause Overland to transfer to the Company (or a designee thereof)
the Unified ConneXions, Inc. business, the HVE ConneXions, LLC business (as
defined below), and the SNAP Business (as defined below). See The Share
Purchase AgreementConditions to the Completion of the Share Purchase.
Use of Proceeds (see page 51)
If the Share Purchase is
completed, the Company will receive at the Closing $45.0 million in cash,
subject to a working capital adjustment. The net proceeds from the Share
Purchase will be used to repay all of the Companys outstanding obligations
under the Credit Agreement entered into by the Company with Opus Bank in April
2016, as amended (the
Opus
Credit Agreement
) and its outstanding
obligations under the $24.5 million convertible note entered into by the Company
with FBC Holdings in December 2014, as amended (the
FBC Note
). As of
December 31, 2017, the outstanding balance of the term loan under the Opus
Credit Agreement was $10.0 million and the outstanding balance of the credit
facility under the Opus Credit Agreement was $8.2 million. The Opus Credit
Agreement and the FBC Note mature on March 31, 2018. The Company will use any
remaining net proceeds to pay transaction expenses associated with the Share
Purchase. In addition, following the Share Purchase, it is expected that other
liabilities, including, among others, $2.3 million of indebtedness in connection
with that certain subordinated promissory note, issued on or around December 11,
2017 (the
MFV Note
) by Overland Storage to MF Ventures, LLC, will be
repaid. The MFV Note will become due and payable in accordance with its terms as
a result of the repayment of the outstanding obligations under the Opus Credit
Agreement and the FBC Note. It is possible that the net proceeds will not be
sufficient to pay all of the above debts, liabilities and expenses or that there
will not be enough cash or working capital in the Company to fund its continuing
operations. Accordingly, the Company may need to raise additional capital
through debt or equity financings before, at or around the time of the Closing.
For more information, see Risk Factors Relating to the Proposal to Approve the
Transaction Resolution.
Post-Closing Business (see page 38)
Upon completion of the Share
Purchase, the Company will continue to sell its converged and hyperconverged
infrastructure products and professional services under its HVE brand, its
proprietary virtualization and container software, and the SNAP line of
products. The Company will focus its efforts on growing its business within the
integrated systems marketplace and continue to offer its products through a
global network of distributors and resellers, as well as direct to customers
within certain key accounts.
Management believes that the
Company, following the consummation of the Share Purchase, could benefit from a
number of factors including (among others):
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reduced balance sheet risk through the paying off of
and/or substantially decreasing its current debt under the Opus Credit
Agreement, the FBC Note, and the MFV Note;
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greater flexibility through a significantly reduced
workforce;
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greater ability to focus on a much smaller segment of the
overall IT marketplace;
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simplified value proposition to customers and partners;
and
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more effective marketing with the reduction in the number
of product lines to support.
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2
It is expected that upon
completion of the Share Purchase, Peter Tassiopoulos, the current President of
the Company, will assume the role of Chief Executive Officer of the Company,
Joseph ODaniel, President of Virtualization and Professional Services, will
assume the role of President of the Company, and the Company will retain a new
Chief Financial Officer with assistance from Kurt L. Kalbfleisch, the current
Chief Financial Officer, on a transitional basis.
Risk Factors Relating to the Proposal to Approve the
Transaction Resolution (see page 47)
In considering whether to vote in
favor of the Transaction Resolution (as defined below), you should consider a
number of risks and uncertainties, including, among others, that:
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if we fail to complete the Share Purchase, our business
may be harmed, including continuing to face challenges and uncertainties
in our ability to repay the outstanding obligations due under the Opus
Credit Agreement and the FBC Note, which are both scheduled to mature on
March 31, 2018;
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the Purchase Price may be insufficient for the Company to
pay off its outstanding obligations and may therefore need to raise
additional capital through debt or equity financings, failing which the
Company may not be able to continue to operate as a going concern;
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the Share Purchase may not be completed if the conditions
to closing set forth in the Share Purchase Agreement are not satisfied or
waived;
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Purchaser may not obtain financing;
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if the Share Purchase is not completed, we may explore
other potential transactions, but the alternatives may be less favorable
to us and there can be no assurance that we will be able to complete an
alternative transaction;
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failure to complete the Share Purchase may cause the
market price for our Common Shares to decline; and
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following the completion of the Share Purchase, we may
fail to satisfy the continued listing standards of the NASDAQ Capital
Market and may have to delist our Common Shares.
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Recommendation of the Special Committee (see page 28)
Having undertaken a thorough
review of, and carefully considered, information concerning the Share Purchase
and the Fairness Opinion (as defined below) and after consulting with
independent financial and legal advisors, the Special Committee determined that
the Share Purchase is in the best interests of the Company and is fair to the
Company and the Shareholders and unanimously recommended that the Board approve
the Share Purchase and that the Shareholders vote in favor of the Transaction
Resolution. A discussion of the material factors considered by the Special
Committee in reaching their conclusions can be found under the heading The
Share PurchaseSpecial Committee Recommendation.
Recommendation of the Board of Directors (see page 31)
After careful consideration, our
Board of Directors (with Eric Kelly recusing himself from the deliberations and
voting), upon the unanimous recommendation of the Special Committee, has
unanimously determined that the Share Purchase is advisable and is fair to, and
in the best interests of, the Company and the Shareholders, and adopted and
declared advisable the Share Purchase, authorized the entering into of the Share
Purchase Agreement and the performance of the Company of its obligations under
the Share Purchase Agreement, and recommended that the Shareholders vote in
favor of the Transaction Resolution. Additional information regarding the
Boards recommendation can be found under the heading The Share PurchaseBoard
of Directors Recommendation. Our Board of Directors (with Eric Kelly recusing
himself from the deliberations and voting) unanimously recommends that you vote
FOR the Transaction Resolution.
Interests of Sphere 3Ds Directors and Executive Officers
in the Share Purchase (see page 40)
In considering the
recommendations of the Board and the Special Committee, Shareholders should be
aware that certain of the Companys directors and executive officers may have
interests in the Share Purchase that are different from, or in addition to,
those of our Shareholders generally. These interests may create potential
conflicts of interest. Our Board of Directors was aware that these interests
existed when it approved the Share Purchase. Except as described in this Proxy
Statement, such persons have, to the knowledge of the Special Committee, no
material interest in the Share Purchase apart from those of Shareholders
generally. For additional information regarding the interests of the Companys
directors and executive officers in the Share Purchase, see the section entitled
The Share PurchaseInterests of Sphere 3Ds Directors and Executive Officers in
the Share Purchase.
3
Effect on Unvested Equity Awards (see page 40)
If the Share Purchase is
completed, the Companys outstanding equity-based awards will continue to be
governed by the applicable plan and award agreement that govern the award.
However, the Share Purchase would constitute a change in control event (as
such term is defined for purposes of the Companys equity-based awards). Under
the terms of the awards granted to our executive officers (including the
provisions for accelerated vesting of the executive officers equity awards in
certain circumstances under the agreements described below in this Proxy
Statement), as well as certain grants to other key employees and the grants made
to our directors, these awards, to the extent they are outstanding and unvested
immediately prior to the Closing, will accelerate and be fully vested upon the
Closing. In addition, stock options held by our executive officers would
generally remain exercisable for up to one year following the executives
termination of employment (subject to earlier termination upon the expiration of
the maximum term of the option or in connection with a change of control of the
Company). For additional information regarding the effect of the Share Purchase
on unvested equity awards, see the section entitled The Share
PurchaseInterests of Sphere 3Ds Directors and Executive Officers in the Share
Purchase.
Shareholder Approval of the Share Purchase (see page 43)
Since the sale of the shares of
Overland Storage may be deemed to constitute a sale of substantially all of the
assets of Sphere 3D in accordance with Section 184(3) of the OBCA and since the
Share Purchase constitutes a related-party transaction for the purposes of
Multilateral Instrument 61101
Protection of Minority Security Holders in
Special Transactions
(
MI 61101
), the Share Purchase will have to
be approved by at least (i) 66 2/3% of the votes cast by Shareholders
represented in person or by proxy at the Special Meeting, and (ii) a simple
majority of the votes cast by the Minority Shareholders (as defined below)
represented in person or by proxy at the Special Meeting (together, the
Shareholder Approval
).
Fairness Opinion of Roth Capital (see page 31)
Pursuant to an engagement letter,
dated February 14, 2017, the Special Committee retained Roth Capital to render
an opinion to the Special Committee as to the fairness, from a financial point
of view, of the Purchase Price to be received by the Company in the Share
Purchase.
On February 19, 2018, Roth
Capital rendered its oral opinion, subsequently confirmed in writing (the
Fairness Opinion
), to the Special Committee that, as of such date, and
based upon and subject to the various assumptions made, procedures followed,
matters considered and qualifications and limitations set forth in the opinion,
the Purchase Price to be received by the Company in connection with the Share
Purchase is fair, from a financial point of view, to the Company. The Purchase Price to be received by the Company in connection with the Share Purchase was negotiated between the Company and Purchaser and set forth in the draft Share Purchase Agreement provided to Roth Capital on February 16, 2018.
Financing for the Share Purchase (see page
48)
Purchaser is obligated to use its
best efforts to obtain debt and/or equity financing in an amount equal to or
greater than the Purchase Price for the purpose of paying the Purchase Price and
consummating the Share Purchase (the
Financing
).
Regulatory Approvals (see page 43)
Neither we nor Purchaser are
aware of any regulatory requirements or governmental approvals or actions that
may be required to consummate the Share Purchase, except for compliance with the
applicable regulations of the Securities and Exchange Commission (the
SEC
) in connection with this Proxy Statement.
Conditions to the Closing (see page 58)
As more fully described in this
Proxy Statement and in the Share Purchase Agreement, the Companys and
Purchasers obligations to complete the Share Purchase depend on a number of
conditions being satisfied, including:
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the Shareholder Approval;
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the Asset Transfer (as defined below) has been
consummated; and
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the absence of any statute, rule, regulation executive
order, decree, injunction or other order by any governmental entity of
competent jurisdiction that is in effect and has the effect of making any
of the transactions contemplated by the Share Purchase Agreement illegal.
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The obligations of the Company to
effect the Share Purchase are also subject to the satisfaction of the following
conditions:
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the accuracy of representations and warranties made by
Purchaser in the Share Purchase Agreement (subject generally to a material
adverse effect standard, with different standards applicable to certain
representations and warranties);
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4
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performance and compliance in all material respects by
Purchaser of all its obligations and covenants in the Share Purchase
Agreement required to be performed or complied with at or prior to the
Closing; and
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the absence of any claim, suit, action or proceeding
pending against Purchaser, the Company or Overland Storage by any
governmental entity resulting in the making of the transactions
contemplated under the Share Purchase Agreement illegal.
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The obligations of Purchaser to
effect the Share Purchase are also subject to the satisfaction of the following
conditions:
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the accuracy of representations and warranties made by
the Company and Overland Storage in the Share Purchase Agreement (subject
generally to a material adverse effect standard, with different standards
applicable to certain representations and warranties);
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performance and compliance in all material respects by
the Company and Overland Storage of all obligations and covenants of the
Company and Overland Storage in the Share Purchase Agreement required to
be performed or complied with at or prior to the Closing;
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the absence of any claim, suit, action or proceeding
pending against Purchaser, the Company or Overland Storage by any
governmental entity resulting in the making of the transactions
contemplated under the Share Purchase Agreement illegal;
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the absence of a Material Adverse Effect (as defined
below);
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the delivery by the Company to Purchaser of the share
certificates of Overland Storage (if certificated), accompanied by share
transfer instruments; and
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the Financing has been consummated.
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Agreements of the Parties with Respect to the Financing
(see page 55)
In connection with the Share
Purchase and pursuant to the Share Purchase Agreement, Purchaser has agreed to
use best efforts to arrange the Financing.
Pursuant to the Share Purchase
Agreement, prior to the Closing, the Company has agreed to cause Overland
Storage and its subsidiaries to, and to use its commercially reasonable best
efforts to, provide all cooperation reasonably requested by Purchaser in
connection with the arrangement of the Financing provided that such requested
cooperation does not unreasonably interfere with the ongoing operations of the
Company, Overland Storage or any of their respective subsidiaries,
including:
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participating in a reasonable number of meetings,
presentations, road shows, due diligence sessions and sessions with rating
agencies;
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using commercially reasonable best efforts to facilitate
the pledging of collateral;
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providing reasonable assistance with Purchasers
preparation of customary materials for bank information memoranda and
similar customary marketing documents required to be delivered in
connection with arranging the Financing; and
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furnishing Purchaser and its financing sources as
promptly as reasonably practicable with such financial and other pertinent
information regarding Overland Storage and its subsidiaries as may be
reasonably requested by Purchaser, including using commercially reasonable
efforts to, to the extent requested by Purchaser, provide customary and
reasonably required know your customer information at least 2 business
days prior to the Closing.
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In connection with the Share
Purchase and pursuant to the Share Purchase Agreement, prior to the Closing,
Purchaser must use its best efforts to arrange the Financing as promptly as
practicable (but no later than the Closing Date (as defined below)), including
using best efforts to:
5
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negotiate and finalize definitive agreements
with respect thereto (the
Financing Documents
);
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satisfy on a timely basis all conditions
applicable to Purchaser (or its affiliates) in such Financing Documents;
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comply with its and their obligations under any
Financing Documents and consummate the Financing no later than the Closing
Date; and
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enforce its and their rights under the
Financing Documents.
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In the event that all conditions
to the Financing Documents have been satisfied in Purchasers good faith
judgment, Purchaser has agreed use its best efforts to cause the lenders and the
other persons providing such Financing to fund the Financing by the Closing
Date.
The Company also has agreed to
prepare and deliver to Purchaser promptly after the Closing certain unaudited
financial statements as of December 31, 2017 of Overland Storage.
Restrictions on Solicitation of Acquisition Proposals
(see page 56)
Prior to the occurrence of a
Contingency Termination Event (as defined below), which requires (i) the
execution and delivery of financing commitments in forms reasonably acceptable
to the Company, which provide, among other things, for commitments from
financing sources sufficient to pay the Purchase Price in the Share Purchase,
(ii) the execution and delivery by Purchaser of an irrevocable waiver in a form
reasonably acceptable to the Company waiving Purchasers condition to the
obligation to close the Share Purchase that the financing to consummate the
Share Purchase has been received, and (iii) the delivery to the Company by
Purchaser of an executed certificate making certain representations regarding
the Commitments (as defined below), the Company is free to engage in discussions
and negotiations with third parties regarding the potential sale of the Company,
Overland or any of their respective businesses or assets. The Company has agreed
to certain restrictions described below regarding solicitation of acquisition
proposals, which take effect only upon and after a Contingency Termination
Event. A further description of a Contingency Termination Event can be found at
The Share Purchase AgreementRepresentations and Warranties.
The Share Purchase Agreement
provides that, effective upon a Contingency Termination Event, the Company and
its subsidiaries may not, and may not authorize or knowingly permit any of the
directors or senior executive officers of the Company, or any investment banker,
attorney, accountant or other advisor retained by the Company or its
subsidiaries to, directly or indirectly:
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solicit, initiate or knowingly facilitate or encourage
the submission of any acquisition proposal;
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enter into or participate in any discussion or
negotiations with, or furnish any nonpublic information or access relating
to the Company or any of its subsidiaries to, any person with respect to
an acquisition proposal or any inquiry or proposal that could reasonably
be expected to lead to an acquisition proposal; or
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enter into any agreement in principle, letter of intent,
merger agreement, acquisition agreement or other similar agreement
relating to an acquisition proposal.
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The Share Purchase Agreement
provides that, after a Contingency Termination Event, the Board may not fail to
make, and may not withdraw, withhold, qualify or modify or resolve to or
publicly propose to withdraw, withhold, qualify or modify in a manner adverse to
Purchaser, the recommendation of the Board with respect to the Share Purchase
Agreement or approve, endorse, or recommend, or publicly propose to approve,
endorse or recommend, an acquisition proposal.
Notwithstanding these
restrictions, and subject to certain limitations, the Company may provide
non-public information and access relating to the Company and its subsidiaries
pursuant to a confidentiality agreement to, and engage in discussions or
negotiations with, a third party if such third party has made an unsolicited
written
bona fide
acquisition proposal that did not result from a
material breach of the restrictions on the Company set forth above, and the
Board determines in good faith, after consultation with its financial advisor
and outside legal counsel, that such acquisition proposal would reasonably be
expected to result in a superior proposal.
The Share Purchase Agreement
contains various limitations and exceptions on the aforementioned restrictions
on soliciting acquisition proposals. A further description of these limitations
and exceptions can be found at The Share Purchase AgreementNon-Solicitation
Covenant.
6
Change in Board Recommendation and Termination of Share
Purchase AgreementSuperior Proposal (see page 57)
After the occurrence of a
Contingency Termination Event and subject to certain limitations set forth in
the Share Purchase Agreement, if the Board determines in good faith, after
consultation with its outside legal counsel and in response to an unsolicited,
written
bona fide
acquisition proposal that did not result from a
material breach of the restrictions on the Company set forth above, that such
acquisition proposal is a superior proposal and the failure to take such action
would be reasonably likely to result in a breach of its fiduciary duties under
applicable law, the Board may make an adverse recommendation change or cause the
Company to terminate the Share Purchase Agreement in order to accept the
superior proposal, subject to complying with certain notice and other specified
conditions set forth in the Share Purchase Agreement, including giving Purchaser
the opportunity to make adjustments to the terms of the Share Purchase Agreement
in response to the superior proposal so that such proposal no longer constitutes
a superior proposal. If the Board changes its recommendation with respect to the
Share Purchase and Share Purchase Agreement, Purchaser may terminate the Share
Purchase Agreement and collect a termination fee. If the Company terminates the
Share Purchase Agreement to accept a superior proposal, the Company will also
have to pay to Purchaser a termination fee.
Termination of the Share Purchase Agreement (see page
59)
Mutual Termination Right
The Share Purchase Agreement may
be terminated and abandoned at any time prior to the closing date of the Share
Purchase (the
Closing Date
) by the mutual written agreement of the
Company and Purchaser.
Termination Rights Exercisable by either the Company or
Purchaser
The Share Purchase Agreement may
also be terminated by either the Company or Purchaser if:
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the Share Purchase has not occurred on or before the date
that is 180 days after the date of the Share Purchase Agreement (such
date, the
End Date
); provided, however, that this termination
right will not be available to any party whose action or failure to act
has been the principal cause of or resulted in the failure of the Share
Purchase to occur on or before the End Date and such action or failure to
act constitutes a breach of the Share Purchase Agreement; or
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a governmental entity of competent jurisdiction has
issued a final and nonappealable order, decree or ruling or taken any
other action (including the failure to have taken an action), in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Share Purchase.
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The Companys Termination Rights
The Company may also terminate the
Share Purchase Agreement if:
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Purchaser has breached or failed to perform
its obligations under the Share Purchase Agreement, which breach or
failure would result in a failure of certain of the conditions to the
consummation of the Share Purchase, subject to cure rights;
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prior to the Contingency Termination Event for any reason
or for no reason;
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after the occurrence of the Contingency Termination
Event, but prior to the Shareholder Approval and substantially
concurrently with the termination of the Share Purchase Agreement, the
Company (i) enters into an alternative acquisition agreement that
constitutes a superior proposal in accordance with the terms of the Share
Purchase Agreement, and (ii) pays to Purchaser a termination fee; or
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after the occurrence of a Contingency Termination Event,
(i) the Company and Overland Storages conditions to consummate and effect
the Share Purchase and the other transactions contemplated by the Share
Purchase Agreement have been satisfied or waived, (ii) the Company has
confirmed by written notice to Purchaser that all of Purchasers
conditions to consummate and effect the Share Purchase and the other
transactions contemplated by the Share Purchase Agreement have been
satisfied or waived and (iii) the Share Purchase and the other
transactions contemplated by the Share Purchase Agreement have not been
consummated within 2 business days after the delivery of such notice.
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Purchaser Termination Rights
Purchaser may also terminate the
Share Purchase Agreement if:
7
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the Company or Overland Storage has breached
or failed to perform its obligations under the Share Purchase Agreement,
which breach or failure would result in a failure of certain of the
conditions to the consummation of the Share Purchase, subject to cure
rights; or
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the Board modifies or withdraws its recommendation that
the Shareholders approve the Transaction Resolution.
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Termination Fee Payable by the Company (see page 60)
Following the occurrence of the
Contingency Termination Event, the Company has agreed to pay to Purchaser a
termination fee equal to the lesser of (i) $1.0 million and (ii) the aggregate
of the amount of Purchasers reasonable and documented out-of-pocket fees and
expenses relating to the evaluation, negotiation and execution of the Share
Purchase Agreement and the amount that Purchaser is obligated to pay or
reimburse to the Financing Sources (as defined below) pursuant to the
Commitments in cash in the following circumstances:
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in the event the Share Purchase Agreement is terminated
by Purchaser because the Board modifies or withdraws its recommendation
that the Shareholders approve the Transaction Resolution;
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in the event the Share Purchase Agreement is terminated
by the Company in order to enter into a definitive agreement with respect
to a superior proposal;
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if all three of the following events occur:
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an acquisition proposal is communicated to the Company or
announced publicly after the date of the Share Purchase Agreement and such
acquisition proposal has not been withdrawn on or prior to the date that
is 5 business days prior to the date of the Special Meeting;
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the Share Purchase Agreement is terminated (i) by
Purchaser as the result of the Company or Overland Storages material
breach of its obligations under the Share Purchase Agreement and such
breach would result in the failure of certain conditions to the
consummation of the Share Purchase, subject to cure rights, or (ii) by
either party if the Closing has not occurred by the End Date; and
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within 6 months after such termination the Company enters
into a definitive agreement with respect to such acquisition proposal and
such acquisition proposal is thereafter consummated.
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In no event will the Company be
obligated to pay the termination fee on more than one occasion. Further, should
the Company be obligated to pay the expense reimbursement discussed below, in no
event will it ever have to pay the termination fee.
Expense Reimbursement (see page 61)
In the event the Share Purchase
Agreement is terminated by the Company for any reason or for no reason as
permitted by the Share Purchase Agreement, the Company has agreed to reimburse
Purchaser for its reasonable and documented out-of-pocket expenses incurred in
connection with the negotiation, execution and performance of the Share Purchase
Agreement and the transactions contemplated thereby. However, the amount of the
expense reimbursement will not exceed $350,000 plus any such expenses owed to
Cooley LLP, the legal counsel to Purchaser. In no event will the Company be
obligated to pay the expense reimbursement on more than one occasion. Further,
should the Company be obligated to pay the termination fee, in no event will it
ever have to pay the expense reimbursement.
Indemnification (see page 61)
Subject to certain limitations,
the Company has agreed to indemnify Purchaser and its affiliates (including,
after the Closing, Overland Storage and its subsidiaries) and each of their
respective officers, directors, shareholders, managers, members, employees,
agents, successors and assigns for certain losses suffered or incurred by them
that result from or arise out of:
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any breach or inaccuracy of any representation
or warranty made by the Company or Overland Storage in the Share Purchase
Agreement; and
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any breach or non-fulfillment of any covenant,
agreement or obligation of Overland Storage (at or prior to the Closing)
or the Company under the Share Purchase Agreement.
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8
The Share Purchase Agreement
contains various limitations on the aforementioned indemnification obligations.
A further description of these limitations can be found at The Share Purchase
AgreementIndemnification.
Specific Performance; Exclusive Remedy (see page 62)
The Share Purchase Agreement
provides that the parties may seek to compel the other party to specifically
perform its obligations under Share Purchase Agreement in addition to any other
remedy to which they are entitled at law or in equity.
The Share Purchase Agreement also
provides that upon any termination of the Share Purchase Agreement under which
circumstances a expense reimbursement is payable or a termination fee is payable
and such expense reimbursement or termination fee is paid in full, Purchaser
will be precluded from any other remedy against the Company or Overland Storage,
and Purchaser may not seek to obtain any other recovery or damages of any kind
in connection with the Share Purchase Agreement or transactions contemplated
thereby.
Further, the Share Purchase
Agreement provides that, should the Closing occur, the indemnification
obligations described above will be the sole and exclusive remedy thereafter of
Purchaser and its affiliates with respect to any and all claims relating the
Share Purchase Agreement and the transactions contemplated therein.
Accounting Treatment of the Share Purchase (see page 43)
The Share Purchase is expected to
be accounted for as a sale of a business for accounting purposes. At the
Closing, any difference between the Purchase Price received by the Company, less
transaction expenses, and the book value of the net assets sold will be
recognized as a gain or loss for financial reporting purposes. In subsequent
reporting periods, Overland Storage for current and prior years, including any
gain on the sale of the assets, will be presented as a discontinued operation
for financial reporting purposes.
Fees and Expenses (see page 62)
Except with respect to the
expense reimbursement (as discussed above) and as otherwise set forth in the
Share Purchase Agreement, all fees and expenses incurred in connection with the
Share Purchase Agreement and the transactions contemplated by the Share Purchase
Agreement generally will be paid by the party incurring such expenses whether or
not the Share Purchase is consummated.
The Company estimates that
expenses in the aggregate amount of approximately $ will be incurred by the
Company in connection with the Share Purchase, including legal, financial
advisory, accounting, proxy solicitation, filing fees and costs, the cost of
preparing, printing and mailing this Proxy Statement and fees in respect of the
Fairness Opinion. Except as otherwise expressly provided in the Share Purchase
Agreement, the parties to the Share Purchase Agreement agreed that all
out-of-pocket expenses of the parties relating to the Share Purchase Agreement
or the transactions contemplated thereby will be paid by the party incurring
such expenses.
Certain Tax Consequences of the Share Purchase (see page
44)
The Share Purchase is not
expected to result in the Company recognizing any taxable income for U.S.
federal income tax purposes.
The Share Purchase is a taxable
transaction for the Company for Canadian income tax purposes, and the Company
expects that it will realize a capital loss for Canadian income tax purposes in
connection with the Share Purchase.
Dissent Rights (see page 44)
A Registered
Shareholder (as defined below) of the Company is entitled to dissent under
Section 185 of the OBCA and to be paid the fair value of such Shareholders
Common Shares if such Shareholder duly objects to the Transaction Resolution
before it becomes effective.
The Special Meeting
The Special Meeting (see page 18)
The Special Meeting of the
Shareholders is scheduled to be held at Cityview Plaza, 100 West San Fernando
Street, Suite 340, San Jose, CA 95113, United States of America, on , , 2018 at
9:00 a.m. (Pacific Time). The Special Meeting is being held for the following
purposes:
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1.
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To consider and, if advisable, pass with or without
variation, a special resolution approving the Share Purchase (the full
text of which is attached as Annex B to this Proxy Statement), which may
be deemed to constitute a sale of substantially all of the assets of the
Company in accordance with Section 184(3) of the OBCA, as more particularly described in the Proxy Statement
(the
Transaction Resolution
);
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9
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2.
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To consider and, if advisable, pass with or without
variation, a special resolution (the
Name Change Resolution
)
amending the Company's articles to change the name of the Company to HVE
ConneXions, Inc., as more particularly described in the Proxy Statement
(the
Name Change
); and
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3.
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To transact any other business as may properly come
before the Special Meeting or any adjournments or postponements of the
Special Meeting.
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The Transaction Resolution will
be determined by at least (i) 66 2/3% of the votes cast by Shareholders
represented in person or by proxy at the Special Meeting, and (ii) a simple
majority of the votes cast by the minority Shareholders (as described in the
Proxy Statement) represented in person or by proxy at the Special Meeting. The
Name Change Resolution will be determined by at least 66 2/3% of the votes cast
by Shareholders represented in person or by proxy at the Special Meeting. The
Companys by-laws provide that a quorum at the Special Meeting shall consist of
at least two persons present and holding or representing by proxy not less than
25% of the total number of outstanding Common Shares having voting rights at the
Special Meeting. There must be a quorum for business to be conducted at the
Special Meeting. Failure of a quorum to be present at the Special Meeting will
necessitate an adjournment or postponement and will subject the Company to
additional expense.
The Board of Directors has fixed
the close of business on , 2018 as the record date for the determination of
Shareholders entitled to notice of and to vote at the Special Meeting and at any
adjournment or postponement thereof (the
Record Date
).
10
QUESTIONS AND ANSWERS
The following are some
questions that you, as a Shareholder, may have regarding the Share Purchase and
the Special Meeting and the answers to those questions. The Company urges you to
carefully read the remainder of this Proxy Statement because the information in
this section does not provide all the information that might be important to you
with respect to Share Purchase and the Special Meeting. Additional important
information is also contained in its annexes to and the documents incorporated
by reference into this Proxy Statement.
Q:
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Why did you send me this Proxy Statement?
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A:
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We sent you this Proxy Statement and the enclosed form of
proxy (or voting instruction form) because the Board of Directors is
soliciting your proxy to vote at the Special Meeting.
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Q:
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Where and when is the Special Meeting?
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A:
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The Special Meeting is scheduled to be held at Cityview
Plaza, 100 West San Fernando Street, Suite 340, San Jose, CA 95113, United
States of America, on , , 2018 at 9:00 a.m. (Pacific Time).
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Q:
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Who is entitled to vote?
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A:
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Holders of Common Shares as of the close of business on
the Record Date are entitled to notice of, and to vote at, the Special
Meeting and any adjournments or postponements of the Special Meeting.
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Q:
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What is the quorum required for the Special
Meeting?
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A:
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The Companys by-laws provide that a quorum at the
Special Meeting shall consist of at least 2 persons present and holding or
representing by proxy not less than 25% of the total number of outstanding
Common Shares having voting rights at the Special Meeting. There must be a
quorum for business to be conducted at the Special Meeting. Failure of a
quorum to be present at the Special Meeting will necessitate an
adjournment or postponement and will subject the Company to additional
expense. Once a Common Share is represented at the Special Meeting, it
will be counted for the purpose of determining a quorum at the Special
Meeting and any adjournment of the Special Meeting. However, if a new
record date is set for the adjourned Special Meeting, then a new quorum
will have to be established. If you complete, sign and return your form of
proxy without indicating how you wish to vote, your proxy will be counted
as a vote in favor of the Transaction Resolution and the Name Change
Resolution.
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Q:
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What am I being asked to vote on at the Special
Meeting?
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A:
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You will be asked to consider and vote upon the following
proposals:
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to consider and, if advisable, pass with or without
variation, a special resolution approving the Share Purchase, which may be
deemed to constitute a sale of substantially all of the assets of the
Company in accordance with Section 184(3) of the OBCA;
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to consider and, if advisable, pass with or without
variation, a special resolution amending the Company's articles to change
the name of the Company to HVE ConneXions, Inc.; and
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the transaction of any other business as may properly
come before the Special Meeting or any adjournments or postponements of
the Special Meeting.
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Q:
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How does the Board of Directors and the Special
Committee recommend that I vote on the proposals?
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A:
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For the Transaction Resolution, the Board of Directors
(with Eric Kelly recusing himself from the deliberations and voting) and
the Special Committee unanimously recommend that you vote as follows:
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FOR
the passing, with or without variation, of
the Transaction Resolution approving the Share Purchase in accordance with
Section 184(3) of the OBCA, as more particularly described in this Proxy
Statement.
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For the Name Change Resolution, the Board of Directors
unanimously recommends that you vote as follows:
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11
FOR
the passing, with or
without variation of the Name Change Resolution approving the amendment to the
Companys articles to change the name of the Company to HVE ConneXions, Inc.,
the whole in accordance with Sections 168(1)(a) and 168(5) of the OBCA, as more
particularly described in this Proxy Statement.
Q:
|
Why am I being asked to consider and cast a vote on
the Transaction Resolution?
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A:
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We are organized under the OBCA. Under Section 184(3) of
the OBCA, any sale by us of all or substantially all of our assets must
be authorized by a special resolution passed by the Shareholders. Given
the book value and market value of, and revenues and profits generated by,
the assets being sold pursuant to the Share Purchase, and after taking
into account the specific facts and circumstances of the Share Purchase,
the Share Purchase may be a sale of substantially all of our assets
under the OBCA and, as a result, a special resolution will be required.
The Share Purchase also constitutes a related party transaction for the
purposes of MI 61101, and, as such, requires the affirmative vote of a
simple majority of the votes cast by the Minority Shareholders present in
person or represented by proxy at the Meeting. See The Share
PurchaseRelated Party Transaction Matters.
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The text of the Transaction Resolution is attached as
Annex B to this Proxy Statement. The Transaction Resolution must be
approved by the affirmative vote of at least (i) 66 2/3% of the votes cast
by Shareholders represented in person or by proxy at the Special Meeting,
and (ii) a simple majority of the votes cast by the Minority Shareholders
represented in person or by proxy at the Special Meeting.
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Q:
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What will happen if the Transaction Resolution is
not approved by the Shareholders or is not completed for any other
reasons?
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A:
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The Share Purchase Agreement provides that if either our
Shareholders fail to approve the Transaction Resolution, the Company or
Purchaser may terminate the Share Purchase Agreement. The Share Purchase
Agreement also provides that obtaining such approval is a condition to
each of the Company and Purchaser being obligated to consummate the
transactions contemplated by the Share Purchase Agreement. In the event
that the transaction is not approved by our Shareholders and/or we are
unable to close the Share Purchase Agreement, we may not be able to meet
our obligations to repay the Opus Credit Agreement and the FBC Note, both
of which are scheduled to mature on March 31, 2018, we may not be able to
meet our obligations under the MFV Note and our other obligations relating
to liabilities and transaction expenses and we may not be able to continue
to operate as a going concern without additional debt or equity financing.
Please refer to the section Risk Factors Relating to the Proposal to
Approve the Transaction Resolution for additional information.
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Q:
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Who will buy the shares of Overland Storage and for
what price?
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A:
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If the Transaction Resolution is approved by the
Shareholders and the Share Purchase is completed, Purchaser, an entity
established and controlled by Eric Kelly, will buy all of the shares of
Overland Storage for a total purchase price of $45.0 million in cash,
subject to a working capital adjustment as described below in The Share
Purchase AgreementPost-Closing Purchase Price Adjustment.
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Q:
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Will any of the proceeds from the Share Purchase be
distributed to me as a Shareholder?
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A:
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No, we do not intend to distribute the net proceeds of
the Share Purchase to our Shareholders. The net proceeds from the Share
Purchase will be received by the Company, not our Shareholders. We intend
to use the proceeds from the Share Purchase to repay outstanding
obligations.
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Q:
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Are there risks to the Share
Purchase?
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A:
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Yes. You should carefully read the sections of this Proxy
Statement captioned Forward-Looking Statements and Risk Factors
Relating to the Proposal to Approve the Transaction Resolution, and
the section captioned Risk Factors starting on page 1 of the Companys
most recent Annual Report on Form 20-F, which is incorporated herein by
reference.
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Q:
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What are the tax consequences of the Share Purchase
to Shareholders resident in the United States?
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A:
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The Share Purchase is not expected to result in the
Company recognizing any taxable income for U.S. federal income tax
purposes. The Share Purchase is not a Shareholder-level action, and our
U.S. and non-U.S. Shareholders, in their capacities as such, are not
expected to realize any gain or loss for U.S. federal income tax purposes
solely as a result of the Share Purchase.
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12
Q:
|
What are the Canadian tax consequences of the Share
Purchase and the Asset Transfer?
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A:
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The Share Purchase will be treated for Canadian federal
income tax purposes as a sale of the Companys assets in exchange for
cash. The Share Purchase is a taxable transaction for the Company for
Canadian income tax purposes, and the Company expects that it will realize
a capital loss for Canadian income tax purposes in connection with the
Share Purchase. The Share Purchase and the Asset Transfer are not a
Shareholder-level action, and our U.S. and non-U.S. Shareholders, in their
capacities as such, are not expected to be subject to Canadian income tax
solely as a result of the Share Purchase or the Asset Transfer.
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Q:
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When is the Share Purchase expected to be
completed?
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A:
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If the Transaction Resolution is approved by our
Shareholders, we expect to complete the Share Purchase as soon as
reasonably practicable after all of the closing conditions in the Share
Purchase Agreement have been satisfied or waived. We currently anticipate
that the Share Purchase will be completed in the second calendar quarter
of 2018, subject to the satisfaction or waiver of all closing conditions.
The exact timing of the completion of the Share Purchase, however, cannot
be predicted. See The Share Purchase AgreementClosing of the Share
Purchase and The Share Purchase AgreementConditions to the Completion
of the Share Purchase.
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Q:
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What is the effect of the Share Purchase on
unvested equity awards?
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A:
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If the Share Purchase is completed, the Companys
outstanding equity-based awards will continue to be governed by the
applicable plan and award agreement that govern the award. However, the
Share Purchase would constitute a change in control event (as such term
is defined for purposes of the Companys equity-based awards). Under the
terms of the awards granted to our executive officers (including the
provisions for accelerated vesting of the executive officers equity
awards in certain circumstances under the agreements described below in
this Proxy Statement), as well as certain grants to other key employees
and the grants made to our directors, these awards, to the extent they are
outstanding and unvested immediately prior to the Closing, will accelerate
and be fully vested upon the Closing. In addition, stock options held by
our executive officers would generally remain exercisable for up to one
year following the executives termination of employment (subject to
earlier termination upon the expiration of the maximum term of the option
or in connection with a change of control of the Company). For additional
information regarding the effect of the Share Purchase on unvested equity
awards, see the section entitled The Share PurchaseInterests of Sphere
3Ds Directors and Executive Officers in the Share Purchase.
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Q:
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Will the Company continue to be publically traded
following the Share Purchase?
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A:
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Even though we currently satisfy the continued listing
standards for The NASDAQ Capital Market, there can be no assurances that
following the completion of the Share Purchase we will satisfy the
continued listing standards of The NASDAQ Capital Market. In addition, we
will continue to be subject to the rules and regulations of the SEC, The
NASDAQ Capital Market and applicable Canadian securities laws, whether or
not the Share Purchase closes. Please refer to the section Risk Factors
Relating to the Proposal to Approve the Transaction Resolution for more
information.
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Q:
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Will the Companys ticker symbol change following
the Share Purchase?
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A:
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No. Following the Share Purchase, our Common Shares will
continue to be traded on The NASDAQ Capital Market and are expected to
continue to trade under the symbol ANY.
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Q:
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Am I entitled to dissent to the Share
Purchase?
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A:
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If you are a Registered Shareholder (as defined below),
you are entitled to dissent under Section 185 of the OBCA and to be paid
the fair value of your Common Shares if you duly object to the Transaction
Resolution before it becomes effective. You should carefully read the
section of this Proxy Statement entitled The Share PurchaseDissent
Rights for greater details about how to exercise your dissent
rights.
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Q:
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What vote is required to approve the Transaction
Resolution?
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A:
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The proposal to approve the Transaction Resolution
requires the affirmative vote of at least (i) 66 2/3% of the votes cast by
Shareholders represented in person or by proxy at the Special Meeting, and
(ii) a simple majority of the votes cast by the Minority Shareholders
represented in person or by proxy at the Special
Meeting.
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13
Q:
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What vote is required to approve the Name Change
Resolution?
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A:
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The proposal to approve the Name Change Resolution
requires the affirmative vote of at least 66 2/3% of the votes cast by
Shareholders represented in person or by proxy at the Special
Meeting.
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Q:
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What are the effects of not voting or
abstaining?
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A:
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When a form of proxy is properly executed and returned,
the Common Shares it represents will be voted at the Special Meeting as
directed. With respect to each of the proposals, you may either vote For
such proposal or Against such proposal. If you vote For or Against a
proposal, your Common Shares will be voted accordingly. If you return your
proxy without indicating how you wish to vote, your proxy will be counted
as a vote For the proposals.
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Q:
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How do I vote?
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A:
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The voting process is different depending on whether you
are a Registered or Non-Registered Shareholder (as defined
below):
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You are a Registered Shareholder if your Common Shares
are registered in your name;
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You are a Non-Registered Shareholder if your Common
Shares are held on your behalf by an Intermediary (as defined below). This
means the Common Shares are registered in the name of your Intermediary or
the name if the nominee of a clearing agency in which such Intermediary
participates.
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Registered Shareholder
If you are a Registered Shareholder,
you may vote in person at the Special Meeting or by proxy whether or not you
attend the Special Meeting in person.
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To vote over the Internet
, go to
www.voteproxyonline.com and follow the instructions printed on your form
of proxy. If you vote over the Internet, you do not have to mail in a form
of proxy.
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To vote in person at the Special Meeting
, please
come to the Special Meeting with personal identification and proof of
ownership and we will give you an attendance card when you arrive.
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To vote by mail
, please complete, sign, and date
your enclosed form of proxy, and promptly return it to our transfer agent
using the postage paid envelope provided to ensure that it is received
prior to the closing of the polls at the Special Meeting.
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To vote by telephone
, call (toll-free in North
America) and follow the instructions printed on your form of proxy. If you
vote by telephone, you do not have to mail in a form of proxy.
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To vote by facsimile
, fax your completed and
signed form of proxy to (toll-free in North America). If you vote by
facsimile, you do not have to mail in a form of proxy.
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In each case, other than voting in
person at the Special Meeting, your vote must be received by TSX Trust Company
not less than 48 hours (excluding Saturdays, Sundays and statutory holidays in
the province of Ontario) preceding the Special Meeting or an adjournment or
postponement of the Special Meeting. The Chairman of the Special Meeting may
waive the proxy cut-off without notice. If a Registered Shareholder received
more than one form of proxy because such Shareholder owns Common Shares in
different names or addresses, each form of proxy should be completed and
returned.
Whether or not you plan to attend the
Special Meeting, please complete, sign, date and return the enclosed form of
proxy (or voting instruction form) as soon as possible to ensure your
representation at the Special Meeting.
If you complete, sign, date and return
your form of proxy without indicating how you wish to vote, your proxy will be
counted as a vote in favor of the Share Purchase.
Non-Registered Shareholder
If you are a Non-Registered
Shareholder, you should note that only proxies deposited by Shareholders whose
names appear on the records of the Company as the registered holders of Common
Shares can be recognized and acted upon at the Special Meeting and that only such Shareholders can be
recognized at the Special Meeting. Therefore, you should carefully follow the
instructions of your Intermediaries (as defined below) and indicated on the
materials provided to them, and ensure that instructions respecting the Special
Meeting and the voting of their Common Shares are communicated to the
appropriate person.
14
Q:
|
What if I want to change my vote or revoke my
proxy?
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A:
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If you are a Registered Shareholder, you may revoke your
proxy by depositing an instrument in writing at the registered office of
the Company, 240 Matheson Blvd. East, Toronto, Ontario, L4Z 1X1, at any
time, up to and including the last business day preceding the day of the
Special Meeting, or any adjournment or postponement thereof, at which the
proxy is to be used, or with the Chair of the Special Meeting on the day
of the Special Meeting, or any adjournment or postponement thereof, and
upon either of such deposits, the proxy is revoked.
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In addition, you may revoke your proxy by executing
another form of proxy bearing a later date and depositing same at the
offices of the registrar and transfer agent of the Company within the time
period set out under the heading The Special MeetingVoting of Proxies,
or by attending the Special Meeting or any adjournment thereof and voting
your Common Shares in accordance with the procedures set out herein. Any
revocation made or delivered at the Special Meeting or any adjournment
thereof shall be valid only with respect to matters not yet dealt with at
the time such revocation is received by the Chair of the Special
Meeting.
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If you are a Non-Registered Shareholder, you will have to
follow the instructions provided by your Intermediary to change or revoke
your proxy.
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Q:
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What do I do if I receive more than one set of
proxy materials?
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A:
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This means that you own Common Shares that are registered
under different accounts. For example, you may own some Common Shares
directly as a Registered Shareholder and other Common Shares as a
Non-Registered Shareholder through an Intermediary, or you may own Common
Shares through more than one such organization. In these situations, you
will receive multiple sets of proxy materials. It is necessary for you to
complete and return each form of proxy in order to vote all of the Common
Shares you own. Please make sure you return each form of proxy in the
accompanying return envelope. You may also vote by Internet, telephone or
facsimile by following the instructions on your proxy materials.
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Q:
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Who will bear the cost of this
solicitation?
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A:
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We will bear the entire cost of our solicitation,
including the preparation, assembly, printing and mailing of this Proxy
Statement and any additional materials furnished to our Shareholders. The
initial solicitation of proxies by mail may be supplemented by telephone,
fax, e-mail, Internet and personal solicitation by our directors, officers
or other regular employees. No additional compensation for soliciting
proxies will be paid to our directors, officers or other regular employees
for their proxy solicitation efforts. We expect to reimburse banks,
brokers and other persons for their reasonable out-of-pocket expenses in
handling proxy materials for beneficial owners of our Common
Shares.
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15
CAUTIONARY STATEMENTS
We have not authorized any
person to give any information or to make any representation in connection with
the Share Purchase, the Name Change or any other matters to be considered at the
Special Meeting other than those contained in this Proxy Statement. If any such
information or representation is given or made to you, you should not rely on it
as having been authorized or as being accurate.
This Proxy Statement does not
constitute an offer to buy, or a solicitation of an offer to sell, any
securities, or the solicitation of a proxy, by any person in any jurisdiction in
which such an offer or solicitation is not authorized or in which the person
making such an offer or solicitation is not qualified to do so or to any person
to whom it is unlawful to make such an offer or solicitation.
Shareholders should not construe
the contents of this Proxy Statement as legal, tax or financial advice and are
urged to consult with their own legal, tax, financial or other professional
advisors.
The information concerning
Purchaser contained in this Proxy Statement has been provided by Purchaser for
inclusion in this Proxy Statement. Although the Company has no knowledge that
would indicate that any statements contained herein taken from or based upon
such source are untrue or incomplete, the Company does not assume any
responsibility for the accuracy or completeness of the information taken from or
based upon such source.
All summaries of, and references
to, the Share Purchase Agreement in this Proxy Statement are qualified in their
entirety by the complete text of the Share Purchase Agreement. The Share
Purchase Agreement is attached as Annex A to this Proxy Statement and a copy of
the Share Purchase Agreement is available on SEDAR at www.sedar.com and on EDGAR
at www.sec.gov.
NO CANADIAN OR UNITED STATES
SECURITIES REGULATORY AUTHORITY HAS PASSED UPON
THE ACCURACY OR ADEQUACY
OF THIS PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS AN
OFFENCE.
16
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Proxy
Statement, and statements in the documents incorporated by reference in this
Proxy Statement, constitute forward-looking information that involves risks and
uncertainties. This forward-looking information includes, but is not limited to,
statements with respect to the anticipated benefits of the Share Purchase, for
the Company, Purchaser and their respective shareholders, and the anticipated
timing of the completion of the Share Purchase. Statements with the words
could, expects, may, will, anticipates, assumes, intends, plans,
believes, estimates, guidance, and similar expressions are intended to
identify statements containing forward-looking information, although not all
forward-looking statements include such words. In addition, any statements that
refer to expectations, projections or other characterizations of future events
or circumstances contain forward-looking information. Statements containing
forward-looking information are not historical facts but instead represent
managements expectations, estimates and projections regarding future events.
Forward-looking statements are
based on the opinions, assumptions and estimates of management at the date the
statements are made, and are subject to a variety of risks and uncertainties and
other factors that could cause actual events or results to differ materially
from those projected in the forward-looking statements. These factors include,
but are not limited to, the following elements: the Purchase Price may be
insufficient for the Company to pay off its outstanding obligations and/or to
provide it with sufficient working capital to operate its business following the
Closing; if we fail to complete the Share Purchase, we will be required to seek
financing to pay off our existing secured debt, satisfy our other liabilities,
pay our transaction expenses and continue our operations as a going concern; the
Share Purchase may not be completed or may be delayed if the conditions to
closing are not satisfied or waived; Purchaser may not obtain Financing; if we
fail to complete the Share Purchase, our business may be harmed; whether we
complete the Share Purchase or not, we may not have sufficient working capital
and may need to seek additional financing; our business may be harmed if the
Share Purchase disrupts the operations of our business and prevents us from
realizing intended benefits; failure to complete the Share Purchase may cause
the market price for our Common Shares to decline; following the completion of
the Share Purchase, we may fail to satisfy the continued listing standards of
The NASDAQ Capital Market and may have to delist our Common Shares; we will
continue to incur the expenses of complying with public company reporting
requirements following the Closing; if the Share Purchase is not completed, we
may explore other potential transactions, but the alternatives may be less
favorable to us and there can be no assurance that we will be able to complete
an alternative transaction; by completing the Share Purchase, we will no longer
be engaged in the data protection and archive business; and the expected
operations of the Company post-closing.
All the forward-looking
information in this Proxy Statement is qualified by these cautionary statements.
Statements containing forward-looking information contained herein are made only
as of the date of such document. The Company expressly disclaims any obligation
to update or alter statements containing any forward-looking information, or the
factors or assumptions underlying them, whether as a result of new information,
future events or otherwise, except as required by law.
17
THE SPECIAL MEETING
This Proxy Statement is being
provided to the Shareholders
as part of a solicitation of proxies by the
Board of Directors for use at the Special Meeting to be held at the time and
place specified below, and at any properly convened meeting following an
adjournment or postponement thereof. This Proxy Statement provides
Shareholders
with the information they need to know to be able to vote or
instruct their vote to be cast at the Special Meeting.
Date, Time and Place
The Special Meeting is scheduled
to be held at held at Cityview Plaza, 100 West San Fernando Street, Suite 340,
San Jose, CA 95113, United States of America, on , , 2018 at 9:00 a.m. (Pacific
Time).
Purpose of the Special Meeting
At the Special Meeting, the
Shareholders will be asked to consider and vote on the following proposals:
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1.
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To consider and, if advisable, pass with or without
variation, a special resolution approving the sale of the shares of
Overland Storage, which may be deemed to constitute a sale of
substantially all of the assets of the Company in accordance with Section
184(3) of the OBCA, as more particularly described in this Proxy
Statement;
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2.
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To consider and, if advisable, pass with or without
variation, a special resolution amending the Company's articles to change
the name of the Company to HVE ConneXions, Inc., as more particularly
described in this Proxy Statement; and
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3.
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To transact any other business as may properly come
before the Special Meeting or any adjournments or postponements of the
Special Meeting.
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The Transaction Resolution will
be determined by at least (i) 66 2/3% of the votes cast at the Special Meeting
by Shareholders represented in person or by proxy at the Special Meeting, and
(ii) a simple majority of the votes cast by the Minority Shareholders
represented in person or by proxy at the Special Meeting. The Name Change
Resolution will be determined by at least 66 2/3% of the votes cast by
Shareholders represented in person or by proxy at the Special Meeting. The
Companys by-laws provide that a quorum at the Special Meeting shall consist of
at least 2 persons present and holding or representing by proxy not less than
25% of the total number of outstanding Common Shares having voting rights at the
Special Meeting.
The Company does not expect a
vote to be taken on any other matters at the Special Meeting or any adjournment
or postponement thereof. If any other matters are properly presented at the
Special Meeting or any adjournment or postponement thereof for consideration,
however, the holders of the proxies will have discretion to vote on these
matters in accordance with their best judgment.
Record Date; Shareholders Entitled to Vote
Only holders of record of Common
Shares at the close of business on , 2018, the Record Date for the Special
Meeting, will be entitled to notice of, and to vote at, the Special Meeting or
any adjournments or postponements of the Special Meeting. At the close of
business on the Record Date, Common Shares were issued and outstanding and held
by holders of record.
Holders of record of Common
Shares are entitled to one vote for each Common Share they own at the close of
business on the Record Date.
Quorum
The Companys by-laws provide
that a quorum at the Special Meeting shall consist of at least 2 persons present
and holding or representing by proxy not less than 25% of the total number of
outstanding Common Shares having voting rights at the Special Meeting. There
must be a quorum for business to be conducted at the Special Meeting. Failure of
a quorum to be present at the Special Meeting will necessitate an adjournment or
postponement and will subject the Company to additional expense. Once a Common
Share is represented at the Special Meeting, it will be counted for the purpose
of determining a quorum at the Special Meeting and any adjournment of the
Special Meeting. However, if a new record date is set for the adjourned Special
Meeting, then a new quorum will have to be established. If you submit a properly
executed form of proxy (or voting instruction form) without indicating how you
wish to vote, your proxy will be counted as a vote in favor of the Transaction Resolution.
18
Required Vote
The proposal to approve the
Transaction Resolution requires the affirmative vote of at least (i) 66 2/3% of
the votes cast by Shareholders represented in person or by proxy at the Special
Meeting, and (ii) a simple majority of the votes cast by the Minority
Shareholders represented in person or by proxy at the Special Meeting.
The proposal to approve the Name
Change Resolution requires the affirmative vote of at least 66 2/3% of the votes
cast by Shareholders represented in person or by proxy at the Special Meeting.
Notice
The Notice of Special Meeting has
been delivered to Shareholders by the Company, along with the applicable voting
document (a form of proxy in the case of Registered Shareholders (as defined
below) or a voting instruction form in the case of Non-Registered Shareholders).
The Company will send proxy-related materials directly to non-objecting
Non-Registered Shareholders, through the services of its registrar and transfer
agent, TSX Trust Company. The Company intends to pay for the Intermediary to
deliver to objecting Non-Registered Shareholders the proxy-related materials and
Form 54101F7-
Request for Voting Instructions Made by Intermediary
in
accordance with National Instrument 54-101 Communication with Beneficial
Owners of Securities of a Reporting Issuer (
NI 54101
).
The Company reminds its
Shareholders that they should carefully review this Proxy Statement before
voting their Common Shares or instructing a proxy holder.
Solicitation of Proxies
This Proxy Statement is
furnished to Shareholders of Sphere 3D Corp. in connection with the solicitation
by and on behalf of the management of the Company of proxies to be used at the
Special Meeting of Shareholders of the Company to be held at
Cityview Plaza, 100 West San Fernando Street, Suite 340, San Jose, CA
95113, United States of America, on , 2018 at 9:00 a.m. (Pacific time), and at
any adjournment(s) or postponement(s) thereof, for the purposes set forth in the
attached notice of special meeting of Shareholders (the Notice of Special
Meeting).
Solicitations may be made by mail
and supplemented by telephone, internet, facsimile, or other personal contact by
the officers, employees or agents of the Company without special compensation.
Pursuant to NI 54101, arrangements have been made with clearing agencies,
brokerage houses and other financial intermediaries to forward proxy
solicitation materials to the beneficial owners of the Common Shares. The cost
of any such solicitation will be borne by the Company. The Company will not be
relying on the notice and access delivery procedures outlined in NI 54101 to
distribute copies of proxy-related materials in connection with the Special
Meeting.
The Board of Directors has fixed
the Record Date for the Special Meeting to be the close of business on , 2018.
Shareholders of record as at the Record Date are entitled to receive notice of
the Special Meeting. Shareholders of record will be entitled to vote those
Common Shares included in the list of Shareholders entitled to vote at the
Special Meeting prepared as at the Record Date.
Interest of Certain Persons in Matters to be Acted Upon
Except as disclosed in this Proxy
Statement, the directors of the Company are not aware of any material interest,
direct or indirect, of any person who has been a director or executive officer
of the Company at any time since the beginning of the Companys last completed
financial year, or any associate or affiliate of any of the foregoing persons,
in any matter to be acted upon at the Special Meeting. All of the directors and
officers may be awarded incentive compensation under the Companys stock
incentive plans in accordance with the terms of those plans.
Appointment and Revocation of Proxies
The persons named in the form of
proxy are directors and/or officers of the Company.
A Shareholder has the
right to appoint a person (who need not be a Shareholder) to attend and
represent such Shareholder at the Special Meeting other than those persons named
in the form of proxy. Such right may be exercised by striking out the printed
names and inserting such other persons name in the blank space provided in the
form of proxy or by completing another proper form of proxy.
A form of proxy
will not be valid unless it is completed, dated, signed and delivered to the
office of the registrar and transfer agent of the Company, TSX Trust Company,
Attention: Proxy Department, Suite 301, 100 Adelaide Street West, Toronto, ON
M5H 4H1, fax number (416) 595-9593, not less than 48 hours (excluding Saturday,
Sunday and statutory holidays in the province of Ontario) preceding the
Special Meeting or an adjournment or postponement of the Special Meeting.
19
A Shareholder who has given a
proxy may revoke it as to any matter upon which a vote has not already been cast
pursuant to the authority conferred by the proxy.
A proxy may be revoked by
depositing an instrument in writing, executed by the Shareholder or his or her
attorney authorized in writing, or, if the Shareholder is a corporation, under
its corporate seal or signed by a duly authorized officer or attorney for the
corporation at the registered office of the Company, 240 Matheson Blvd. East,
Toronto, Ontario, L4Z 1X1, at any time, up to and including the last business
day preceding the day of the Special Meeting, or any adjournment or postponement
thereof, at which the proxy is to be used, or with the Chair of the Special
Meeting on the day of the Special Meeting, or any adjournment or postponement
thereof, and upon either of such deposits, the proxy is revoked.
In addition, a proxy may be
revoked by the Shareholder executing another form of proxy bearing a later date
and depositing same at the offices of the registrar and transfer agent of the
Company within the time period set out under the heading The Special
MeetingVoting of Proxies, or by the Shareholder personally attending the
Special Meeting or any adjournment thereof and voting his or her Common Shares
in accordance with the procedures set out herein. Any revocation made or
delivered at the Special Meeting or any adjournment thereof shall be valid only
with respect to matters not yet dealt with at the time such revocation is
received by the Chair of the Special Meeting.
Voting of Proxies
All Common Shares represented at
the Special Meeting by properly executed proxies will be voted and where a
choice, including the choice to withhold from voting, with respect to any matter
to be acted upon has been specified in the form of proxy, the Common Shares
represented by the proxy will be voted in accordance with such specifications on
any ballot that may be called for.
In the absence of any such specifications,
the management designees, if named as proxy, will vote FOR all of the matters
set out herein.
The enclosed form of proxy
confers discretionary authority upon the management designees, or other persons
named as proxy, with respect to amendments to or variations of matters
identified in the Notice of Special Meeting and any other matters that may
properly come before the Special Meeting. At the date of this Proxy Statement,
the Company is not aware of any amendments to, or variations of, or other
matters that may come before the Special Meeting. In the event that other
matters come before the Special Meeting, then the management designees intend to
vote in accordance with the judgment of the management of the Company.
Proxies, to be valid, must be
deposited at the office of TSX Trust Company, Attention: Proxy Department, Suite
301, 100 Adelaide Street West, Toronto, ON M5H 4H1, fax number (416) 595-9593,
not less than 48 hours (excluding Saturday, Sunday and statutory holidays in the
province of Ontario) preceding the Special Meeting or an adjournment of the
Special Meeting.
Advice to Non-Registered Shareholders on Voting Their Common
Shares
The information set forth in this
section is of significant importance to many Shareholders, as a substantial
number of Shareholders do not hold their Common Shares in their own name.
Shareholders who do not hold their Common Shares in their own name (referred to
in this Proxy Statement as
Non-Registered Shareholders
) should note
that only proxies deposited by Shareholders whose names appear on the records of
the Company as the registered holders of Common Shares (the
Registered
Shareholders
) can be recognized and acted upon at the Special Meeting. If
Common Shares are listed in an account statement provided to a Shareholder by a
broker, bank, trust company or other intermediary (an
Intermediary
)
then, in almost all cases, those Common Shares will not be registered in such
Shareholders name on the records of the Company. Such Common Shares will
generally be registered under the name of the nominee of a clearing agency in
which such Intermediary participates or, more rarely, in the name of the
Intermediary. In Canada, the vast majority of such shares are registered under
the name of CDS & Co. (the nominee of CDS Clearing and Depository Services
Inc.). Common Shares of Non-Registered Shareholders can only be voted (for or
against resolutions) or withheld from voting upon the instructions of the
Non-Registered Shareholder. Without specific instructions, Intermediaries and
nominees are prohibited from voting Common Shares held by Non-Registered
Shareholders.
Therefore, Non-Registered Shareholders should carefully follow
the instructions of their Intermediaries and indicated on the materials provided
to them, and ensure that instructions respecting the Special Meeting and the
voting of their Common Shares are communicated to the appropriate person.
Applicable securities legislation requires Intermediaries to
seek voting instructions from Non-Registered Shareholders in advance of shareholders meetings. Every
Intermediary has its own mailing procedures and provides its own return
instructions to clients, which should be carefully followed by Non-Registered
Shareholders in order to ensure that their Common Shares are voted at the
Special Meeting. If you are a Non-Registered Shareholder, in addition to the
Notice of Meeting accompanying this Proxy Statement, you also received,
depending on the Intermediary through which your Common Shares are held, either
a voting instruction form which must be completed and returned in accordance
with the directions printed on the form (in some cases, the completion of the
voting instruction form by mail, telephone, facsimile or over the Internet is
permitted) or a form of proxy which has already been signed or stamped with a
facsimile signature of the Intermediary and which is restricted as to the number
of Common Shares beneficially owned by you. Non-Registered Shareholders who
receive voting instruction forms, forms of proxy or other voting materials from
an Intermediary should complete and return such materials in accordance with the
instructions accompanying the materials in order to properly vote their Common
Shares.
20
Although a Non-Registered
Shareholder may not be recognized directly at the Special Meeting for the
purposes of voting Common Shares not registered in its name, a Non-Registered
Shareholder may attend at the Special Meeting as proxyholder for the registered
holder of its Common Shares and vote such Common Shares in that capacity.
Non-Registered Shareholders who wish to attend the Special Meeting and vote
their Common Shares as proxyholder for the registered holder of their Common
Shares should carefully follow the instructions of their Intermediaries and
indicated on the materials provided to them.
Proxy-related materials in
connection with the Special Meeting are being sent to both Registered and
Non-Registered Shareholders. If you are a Non-Registered Shareholder, and the
Company or its agent has sent these materials directly to you, your name and
address and information about your holdings of securities, have been obtained in
accordance with applicable securities regulatory requirements from your
Intermediary. By choosing to send these materials to you directly, the Company
(and not the Intermediary) has assumed responsibility for (i) delivering these
materials to you, and (ii) executing your proper voting instructions. Please
return your voting instructions as specified in the request for voting
instructions.
Voting Shares and Principal Holders Thereof
The Company is authorized to
issue an unlimited number of Common Shares, of which, as of the Record Date,
Common Shares were issued and outstanding and entitled to vote at the Special
Meeting on the basis of one vote for each Common Share held.
The holders of Common Shares of
record at the close of business on the Record Date are entitled to vote such
Common Shares at the Special Meeting on the basis of one vote for each Common
Share held.
To the knowledge of the directors
and officers of the Company, as of the date hereof, the following persons
beneficially own, or exercise control or direction over, directly or indirectly,
more than 10% of the issued and outstanding Common Shares:
Name of Shareholder
|
Number of Issued and Outstanding
Common Shares
|
Voting Power
|
MF Ventures,
LLC
(1)
|
1,694,750
|
%
|
|
(1)
|
Information was obtained from MF Ventures ("
MFV
") pursuant to early
warning report dated August 15, 2017. MFV owns or controls, directly or
indirectly, an aggregate of 1,694,570 Common Shares, and has the right to
acquire an additional 572,727 Common Shares upon exercise of certain
convertible securities. The 1,694,570 Common Shares currently held by MFV,
in addition to the 572,727 Common Shares that can be acquired upon
exercise of certain convertible securities of the Company (for a total of
2,267,297 Common Shares), represent approximately % of all issued and
outstanding Common Shares as at the Record Date, calculated on a partially
diluted basis assuming the exercise of the convertible securities of the
Company beneficially owned by MFV only.
|
Adjournments or Postponements
Although it is not currently
expected, the Special Meeting may be adjourned or postponed for the purpose of
soliciting additional proxies. Any adjournment or postponement may be made
without notice, other than by an announcement made at the Special Meeting of the
time, date and place of the adjourned or postponed special meeting.
21
THE SHARE PURCHASE
The discussion of the Share
Purchase in this Proxy Statement is qualified in its entirety by reference to
the Share Purchase Agreement, a copy of which is attached to this Proxy
Statement as Annex A and available on EDGAR at www.sec.gov and on SEDAR at
www.sedar.com and is incorporated by reference into this Proxy Statement.
Parties to the Share Purchase
Sphere 3D Corp.
Sphere 3D Corp. was incorporated
under the OBCA
on May 2, 2007 as T.B. Mining Ventures Inc. On March 24,
2015, the Company completed a short-form amalgamation with a wholly owned
subsidiary. In connection with the short-form amalgamation, the Company changed
its name to Sphere 3D Corp.
The Company delivers data
management, and desktop and application virtualization solutions via hybrid
Cloud, Cloud and on-premise implementations through its global reseller network.
The Company achieves this through a combination of containerized applications,
virtual desktops, virtual storage and physical hyper-converged platforms. The
Companys products allow organizations to deploy a combination of public,
private or hybrid cloud strategies while backing them up with the latest storage
solutions. The Company has a portfolio of brands including Glassware 2.0,
NEO
®
, RDX
®
, SnapCLOUD, SnapServer
®
,
SnapSync and V3
®
.
These consolidated statements
include the financial statements of the Company, its wholly owned subsidiaries,
including Overland Storage, V3 Systems Holdings, Inc., and Sphere 3D Inc.
Our Common Shares are listed on
The NASDAQ Capital Market under the symbol ANY. We have a global presence and
maintain offices in multiple locations. Executive offices and our primary
operations are conducted from our San Jose and San Diego, California locations.
Our main office is located at 9112 Spectrum Center Blvd., San Diego, CA 92123,
United States of America.
Purchaser
Silicon Valley Technology
Partners LLC is a Delaware limited liability company that was formed solely for
the purpose of completing the Share Purchase. To date, Purchaser has not carried
on any activities other than those related to its formation and completing the
transactions contemplated by the Share Purchase Agreement. As of the date
hereof, Eric Kelly beneficially owns all of Purchaser. It is currently
anticipated that following the date hereof, but prior to the Closing, additional
persons and/or entities will invest in equity of Purchaser. Following the Share
Purchase, Mr. Kelly will serve as the Chief Executive Officer of Purchaser. It
is currently anticipated that Purchaser will offer positions to Kurt L.
Kalbfleisch and Jenny Yeh to serve as the Chief Financial Officer of Purchaser
and the General Counsel of Purchaser, respectively. As of the date hereof, the
compensation arrangements of Mr. Kalbfleisch and Ms. Yeh with Purchaser have not
been determined.
Existing Debt
On December 1, 2014, in
connection with the Companys acquisition of Overland Storage, the existing debt
of Overland and the remaining debt of the Company were amended and restated into
the FBC Note, a $19.5 million convertible note. In April 2016, the Company
modified the FBC Note, pursuant to which the holder made an additional advance
of $5.0 million to the Company. The FBC Note is scheduled to mature on March 31,
2018 and bears interest at an 8.0% simple annual interest rate, payable
semi-annually. The obligations under the FBC are secured by substantially all of
the assets of the Company.
In April 2016, the Company
entered into the Opus Credit Agreement for a term loan in the amount of $10.0
million and a credit facility in the amount of up to $10.0 million. A portion of
the proceeds were used to pay off the Companys then outstanding credit
facilities with FBC Holdings and Silicon Valley Bank. The remainder of the
proceeds were used for working capital and general business requirements. In
September 2017, the Company and Opus Bank entered into an amendment to the Opus
Credit Agreement under which the maturity date for the revolving and term loan
credit facilities were amended to the earliest of (i) the maturity of the FBC
Note, (ii) March 31, 2018, or (iii) such earlier date upon which the obligations
may be accelerated in accordance with terms of the Opus Credit agreement. As of
December 31, 2017, the outstanding balance of the term loan was $10.0 million
and the outstanding balance of the credit facility was $8.2 million.
22
Background of the Share Purchase
The Board of Directors has from
time to time separately engaged with the management of the Company in reviews
and discussions of potential strategic alternatives for the Company, and has
constantly been considering ways to enhance its performance and prospects. These
reviews and discussions have focused on, among other things, the business
environment facing the industry generally and the Company in particular. These
reviews have also included periodic discussions with respect to potential
transactions that would further its strategic objectives and enhance shareholder
value, and the potential benefits and risks of those transactions.
During June 2016, the Board
discussed pursuing potential strategic alternatives and over the following
several months, multiple potential financial advisors gave presentations to the
Board regarding, among other things, such potential strategic alternatives. From
July 2016 through the Companys execution of the Share Purchase Agreement, the
Board held either formal or informal meetings and discussions at least as
frequently as approximately twice per month on average. There were also
approximately sixty meetings and/or conference calls with strategic corporate
partners, investment groups and commercial banks from August 2016 to December
2016.
On November 11, 2016, the company
received from Company A an unsolicited non-binding term sheet for the sale of a
portion of the Companys business which represents the Data Protection and
Archive business (the
DP&A Business
), the RDX and tape library
product line and associated services. The offer price was approximately $28.0
million, which included the delivery of inventory. After a review and discussion
of the term sheet, the Board elected to reject the offer based on several
factors, including, among others, the proposed purchase price and the inability
for the Company to pay off its debt obligations with the proceeds from the
transaction.
In November 2016, the Company
received a non-binding term sheet from Debt Source A to refinance its
outstanding debt with a new debt facility secured by a subset of the Companys
patent portfolio combined with an intellectual property monetization strategy.
The Board determined to pursue this transaction. In December 2016, the Company
received draft credit agreements from Debt Source A, which it negotiated with
Debt Source A over the next several weeks.
During December 2016, a
significant shareholder of the Company and an affiliate of one of the Companys
secured creditors proposed that Debt Source A be provided a proposal whereby the
Company would complete a transaction with Debt Source A and subsequently
restructure the Company in a manner whereby the Companys assets would be split
among two newly formed subsidiaries and the debt of the Company (including the
debt then held by the proposing shareholders affiliate) would be exchanged for
equity interests in the Company or such newly formed subsidiaries and Debt
Source A would agree to transfer their newly issued debt to one of the newly
created subsidiaries. The significant shareholder of the Company and an
affiliate of one of the Companys secured creditors, required their proposal by
presented to Debt Source A as part of the process to approve any intercreditor
agreement with Debt Source A. The Board determined that this proposed
transaction was not in the best interests of the Company and the Shareholders
because it would have provided the proposing shareholder (with its affiliate)
with ownership of a significant majority of one or more of such entities.
Thereafter, the Debt Source A
informed the Company that it would not pursue such a transaction with the
Company due, in part, to its concerns that the Companys creditors would not
approve such transaction and to an unrelated transaction involving the ownership
structure of Debt Source A.
On March 1, 2017, the Company
signed an engagement letter with an investment firm with over 30 years of
experience in restructuring debt facilities (
Investment Firm A
). To the
Companys knowledge, Investment Firm A contacted approximately 25 investment
funds, 14 of which signed a confidentiality agreement, and approximately ten of
which requested a Company management presentation. The Company had approximately
20 meetings with such investment funds, which resulted in two investment funds
providing the Company with term sheets to pay off the indebtedness obligations
under the Opus Credit Agreement at a discount. Because both such term sheets
required the Companys lender to accept repayment of less than all of the
outstanding debt, the transactions proposed were rejected by the Companys
lender and the Company was not able to proceed with such transactions.
In April 2017, the Board
determined to commence a more thorough process to review and consider strategic
alternatives and initiated a process to select an investment bank to assist in
this review. During this interview process, the Board interviewed approximately
ten investment banking firms. The Board conducted a detailed four month review
process which included, among other things, a series of meetings, strategy and
approach discussions with the various candidates, alternative strategic
transaction structures (which included, among other things, refinancing the
Companys debt, selling the entire Company and selling various portions of the
Company). The Board also evaluated each candidates capabilities, the experience
of each candidates team members and each candidates success in completing
transactions for which it had been engaged. At the conclusion of such interview process, in mid-July 2017, the
Board selected one of the candidates (
Investment Firm B
), and on July 25, 2017, entered into an
engagement letter with Investment Firm B. The Board instructed Investment Firm B to evaluate
strategic alternatives and develop an execution plan that would provide the best
outcome for the Shareholders and address the upcoming debt maturity.
23
On April 17, 2017, the Board held
a meeting at which representatives of Investment Firm B were present. Investment Firm B presented
its views on the best strategy for pursuing possible strategic alternatives, and
its determination that both potential strategic corporate partners and private
equity firms should be approached with the objective of selling either the
entire Company or certain businesses of the Company. Such presentation was made
following an extensive due diligence process conducted by Investment Firm B which included
several meetings with management and the Companys provision to Investment Firm B of
materials and financial models regarding its businesses.
At its August 8, 2017 meeting,
the Board formed the Special Committee upon the recommendation of the Companys
Nominating and Corporate Governance Committee made on the same date, and
appointed Vic Mahadevan, Cheemin Bo-Lin and Duncan McEwan, all being independent
directors of the Company, as the members thereof. Moreover, on August 11, 2017,
the Company publicly announced that it was evaluating strategic options with the
assistance of Investment Firm B and that it had formed the Special Committee for such
purposes.
During the period between August
2017 and February 2018, Investment Firm B approached 85 potential strategic partners,
which included 37 potential strategic corporate partners in connection with the
sale of the entire Company. Of these 37 potential strategic corporate partners,
18 did not respond to the inquiry, 17 declined to move forward and did not sign
a confidentiality agreement with the Company, and two signed a confidentiality
agreement with the Company. No letters of interest or other offers to acquire
the entire Company were received from any potential strategic corporate partners
during this process.
The remaining 48 potential
strategic partners contacted by Investment Firm B were private equity firms who were
contacted regarding a potential acquisition of the entire Company. Of these 48
private equity firms, eight did not respond, 24 declined to move forward and did
not sign a confidentiality agreement with the Company, nine declined to pursue a
transaction with the Company after signing a confidentiality agreement with the
Company and seven had a discussion with the management team under a
confidentiality agreement. No letters of interest or other offers to acquire the
Company were received from any private equity firms during this process, other
than the indication of interest from Company C described below.
In addition, during this period,
Investment Firm B also reached out to a subset of the potential strategic corporate
partners and private equity firms regarding the acquisition of the DP&A
Business. Investment Firm B contacted five strategic corporate partners, two of which
declined to pursue such a transaction and did not sign a confidentiality
agreement with the Company, and three of which had discussions with management
of the Company regarding such a transaction under a confidentiality agreement.
Investment Firm B also contacted 17 private equity firms regarding such a transaction, of
which six declined to pursue such a transaction and did not sign a
confidentiality agreement with the Company, six declined to pursue such a
transaction after signing a confidentiality agreement with the Company, and five
declined to pursue such a transaction after having discussions with the
management of the Company under a confidentiality agreement.
At a meeting of the Board on
November 7, 2017, the Board initially determined that, because, among other
reasons, the Company should
engage in a parallel process in which management of the Company would seek out
potential acquirers of, and investors in, the Company and/or the DP&A
Business. The Board believed pursuing such a transaction could attract
additional potential acquirers and investors who were not part of the Investment Firm B
process and that a sale of the DP&A Business would allow the Company to
focus on the Hyperconverged market, eliminate their current debt facilities and
become a pure play Hyperconverge company. Following such meeting until and
through the execution of the Share Purchase Agreement, Mr. Kelly and other
members of management had approximately 62 meetings or conferences with
potential investors and strategic partners.
On December 27, 2017, Investor A,
one of such potential investors and a significant Shareholder of the Company,
presented to the Company a letter providing a non-binding outline of a proposal
to provide financing to the Company to repay the Companys existing debt
facilities and to fund general corporate activities and working capital needs of
the Company. Such financing was proposed as a convertible secured loan to the
Company, with the proceeds to be used to pay off the Companys existing debt
facilities at a discount. After discussions with the Companys senior secured
creditor, it became evident to the Company that such creditor would not agree to
the time required to execute the repayment at such a discount and therefore,
given Investor As insistence on such a discount, the Company was unable to move
forward with Investor As proposal.
24
On January 19, 2018, at a meeting
of the Board, Mr. Kelly updated the Board regarding the status of the process
with both Investment Firm B and the parallel process approved at the November 7, 2017
meeting of the Board. Given the status of that process, the Board discussed and
approved the Companys exploration of the sale of the DP&A Business to an
entity led by certain members of management of the Company and to be financed by
third party investors. The Board also discussed the potential conflicts of
interest of Mr. Kelly and other members of management in such a transaction but
determined that given the current status of the process with others, pursuing
such transaction on a non-exclusive basis (while still pursuing alternative
transactions) was in the best interests of the Company and the Shareholders. The
Board also unanimously agreed at such meeting that the Company would reimburse
Purchaser for certain reasonable legal fees and other out-of-pocket expenses
necessary to engage in negotiations regarding, and to consummate, such proposed
transaction. The Board further unanimously agreed at such meeting that the
Special Committee would engage, and the Company would pay the fees of, separate
counsel to the Special Committee in connection with its consideration of such a
transaction.
On January 22, 2018, Mr. Kelly
met with Company B, one of a number of investors interested in participating as
a member of the investment group supporting the management lead process. Company
B engaged in significant due diligence efforts regarding the Companys business,
which included review of the Company materials and a follow up meeting with
Messrs. Kelly and Kalbfleish on January 26, 2018. Thereafter, Mr. Kelly had
numerous discussions with Company B until its delivery of the February 6, 2018
non-binding letter of intent referred to below.
On January 29, 2018, the
Companys outside counsel, OMelveny & Myers (
OMM
), sent an initial
draft of the Share Purchase Agreement to Mr. Kelly and Ms. Yeh, which provided,
among other things, that the Purchase Price would be paid through the
forgiveness of a loan that Purchaser would issue to the Company to allow the
Company to repay its debt obligations.
On January 30, 2018, OMM sent an
updated draft of the Share Purchase Agreement to Mr. Kelly, Mr. Mahadevan, one
of the members of the Special Committee, Ms. Yeh, and Cooley LLP
(
Cooley
), counsel to Purchaser, after discussions among such persons.
Such draft, among other things, provided that the Purchase Price would be paid
in cash on hand, removed the restrictions on the Company soliciting alternative
acquisition proposals, provided that the Company could terminate the Share
Purchase Agreement for any reason or no reason and included an expense
reimbursement obligation of the Company.
Also on January 30, 2018, Mr.
Kelly had a meeting with Company C regarding the potential acquisition of the
DP&A Business by Company C.
On February 1, 2018, the Special
Committee met (with both OMM and Davies Ward Phillips & Vineberg LLP
(
Davies
), potential counsel to the Special Committee, present) to
discuss the potential structure of the proposed transaction, the interested
party nature of the transaction, the Shareholder vote requirements and various
potential terms of the transaction (including termination rights), the
desirability of engaging a financial advisor to provide the Fairness Opinion and
the potential candidates to serve in such capacity. The Special Committee also
discussed contingency planning in the event that the transaction could not be
timely consummated, the coming maturity of the Companys credit facilities and
the Companys financial status. The Special Committee also approved the
retention of Davies as counsel to the Special Committee. Following such
approval, Davies discussed with the Special Committee the duties and
responsibilities of members of the Special Committee and identified the key
considerations to be made by the members of the Special Committee in the review
of potential transactions involving management. Finally, the Special Committee
discussed the engagement of an independent financial advisor for the purpose of
preparing a fairness opinion to the Special Committee.
On February 6, 2018, the Company
received from Company B a non-binding letter of intent to acquire the DP&A
Business for $40 million, subject to, among other things, the satisfactory
completion of due diligence.
On February 7, 2018, the Special
Committee and Davies met with Mr. Kelly to discuss the non-binding letter
of intent from Company B and potential timeline for this transaction. OMM and
Mr. Tassiopoulos were also invited by the Special Committee to participate in
that discussion. At the meeting, the Special Committee also discussed other
alternatives, including pursuing bridge financing to meet the Companys debt
obligations, which become due on March 31, 2018. The Special Committee also
discussed the engagement of a financial advisor to the Special Committee and
determined to approach two investment banking firms, including Roth
Capital. Finally, it was determined by the Special Committee that Mr.
Tassiopoulos would be the person responsible, on behalf of the Company and the
Special Committee, for the negotiation of the Share Purchase Agreement with
Purchaser.
On the same day, the Special
Committee received a proposed engagement letter from Roth Capital proposing to
provide the Fairness Opinion, which was negotiated with Roth Capital until
February 14, 2014, when it was approved and entered into by the Special Committee.
25
On February 8, 2018, OMM sent to
the Special Committee and Davies comments to Company Bs non-binding letter of
intent.
On the same day, the Special
Committee met to discuss the potential sale of the DP&A Business. At the
invitation of the Special Committee, Mr. Tassiopoulos and OMM attended the
meeting. During that meeting, OMM informed the Special Committee and Davies
about the state of negotiations on the Share Purchase Agreement, after which,
OMM and Mr. Tassiopoulos excused themselves from the meeting. Thereafter, Davies
further advised the Special Committee of its duties and responsibilities under
Canadian law and answered various questions from the committee members on such
duties and responsibilities.
In response to further comments
from the Special Committee and Davies, on February 9, 2018, OMM sent to the
Special Committee and Davies further revisions to Company Bs non-binding letter
of intent. On the same day, Mr. Tassiopoulos had conversations with Company B to
summarize the Companys comments and provided the revised version of the letter
of intent to Company B.
Further, on February 9, 2018,
following discussions and negotiations involving Mr. Kelly, Mr. Tassiopoulos,
OMM and Cooley, OMM sent a further revised draft of the Share Purchase Agreement
to Messrs. Kelly and Kalbfleisch, Ms. Yeh and Cooley, which, among other things,
included a provision providing that the Company would indemnify Purchaser for
breaches of the representations, warranties and covenants contained therein,
subject to certain limitations.
On February 11, 2018, the Company
received a revised non-binding letter of intent from Company B rejecting most of
the comments made by the Company, and the next day, Mr. Tassiopoulos discussed
such revised version with Company B. During such discussion, while not
discarding the possibility of an acquisition of the DP&A Business by Company
B, it was determined that Company B might, alternatively be a member of the
investment group in Purchaser.
On February 13, 2018, after
further discussions and negotiations among Mr. Kelly, Mr. Tassiopoulos, OMM and
Cooley, OMM sent a revised draft of the Share Purchase Agreement to the Special
Committee and Davies, which included, among other provisions, a working capital
adjustment and certain other provisions triggered upon the occurrence of a
specified financing event, including (among others) the obligation not to
solicit alternative transaction proposals and the obligation to pay a
termination fee in specified circumstances. Many of these changes were included
in an attempt to satisfy the concerns expected to be raised by potential
investors in Purchaser, which included Company B.
On February 14, 2018, after
further discussions and negotiations among Mr. Kelly, Mr. Tassiopoulos, OMM and
Cooley, OMM sent a further revised draft of the Share Purchase Agreement to Mr.
Kelly and Cooley, which included, among other provisions, a working capital
adjustment and certain other provisions triggered upon the occurrence of a
specified financing event, including (among others) the obligation not to
solicit alternative transaction proposals and the obligation to pay a
termination fee in specified circumstances. These changes were also based upon
potential investor concerns raised by Company B. The same draft of the Share
Purchase Agreement was also delivered to Mr. Tassiopoulos, the Special Committee
and Davies.
On the same day, the Special
Committee and Davies met to discuss the sale of the DP&A Business to
Purchaser. During the meeting, the Special Committee considered the purchase
price offered by Purchaser for the DP&A Business and expressed concerns
about the sufficiency of such purchase price to pay-off all of the Companys
debt obligations and liabilities. Finally, the Special Committee reviewed the
draft Share Purchase Agreement received earlier the same day with Davies and
discussed in detail several of the material provisions thereof, including the
proposed working capital adjustment and the Companys ability to solicit
alternative proposals prior to the occurrence of the Contingency Termination
Event and to terminate the Share Purchase Agreement for any reason or no reason
prior to the occurrence of such event. Following a discussion on the
compensation to be paid to Roth Capital in its capacity as financial advisor to
the Special Committee and its independence from the Company, the Special Committee
confirmed the engagement of Roth Capital as financial advisor to the Special
Committee. It was determined to engage Roth Capital due to a series of reasons,
including its ability to opine as to the fairness of the Share Purchase, from a
financial point of view, within a constrained timeline as a result of its
continuous knowledge of the business of the Company. Finally, given the ongoing
negotiations of the Share Purchase, the Special Committee agreed to hold daily
meetings over the next week.
On February 15, 2018, the Special
Committee and Davies met to discuss the status of the negotiations with
Purchaser. Members of the Special Committee continued to address questions to
Davies about the last draft of the Share Purchase Agreement, including the working capital adjustment.
26
On February 16, 2018, Mr.
Tassiopoulos and Mr. Kelly had a discussion regarding the Share Purchase
Agreement with representatives from OMM and Cooley present. Later the same day,
OMM sent a further revised draft of the Share Purchase Agreement to Messrs.
Kelly and Tassiopoulos, and Cooley. The same draft of the Share Purchase
Agreement was delivered to Mr. Tassiopoulos, the Special Committee and Davies.
OMM also sent the initial draft of the Disclosure Schedules to Mr. Kelly and
Cooley.
Also on February 16, 2018, Investment Firm B, on behalf of the
Company, received a preliminary, non-binding indication of interest from Company
C, which provided, among other things, that Company C offered to acquire the
DP&A Business from the Company for $50 million, subject to, among other
things, the completion of certain due diligence. Company C further indicated
that the purchase price would be paid through a combination of cash on Company
Cs balance sheet and through its revolving credit facility.
While the Company continued
discussing such proposal with Company C, it was understood that Company C had
not yet performed significant due diligence and that the expected timeline for
its completion of due diligence and negotiation of any definitive agreement
would take significant time. The Special Committee determined that given these
uncertainties surrounding a potential transaction with Company C, the fact that
delaying the Purchaser proposed-transaction was likely to significantly lessen
the likelihood of investors agreeing to fund Purchaser in connection with the
Share Purchase and the fact that the Company had negotiated for the right to
terminate the Share Purchase for any reason or no reason prior to a Contingency
Termination Event (and also had the right to terminate the Share Purchase
Agreement in the event it received a superior proposal thereafter), that it was
in the best interests of the Company and the Shareholders to move forward with
the Share Purchase.
Further, on February 16, 2018,
the Special Committee and Davies met three times to discuss the state of
negotiations of the Share Purchase Agreement with Purchaser. During one of those
meetings, Roth Capital made a presentation to the Special Committee which
included a description of the analysis performed by it in support of its initial
conclusion as to the fairness, from a financial point of view, of the Share
Purchase to the Company. Following such presentation and various questions asked
by the members of the Special Committee to representatives of Roth Capital about
their analysis, it was determined that Roth Capital would deliver a bringdown
presentation to reflect updated terms of the Share Purchase which would result
from further negotiations of the Share Purchase Agreement over the ensuing days.
Finally, the Special Committee and Davies further discussed the working capital
adjustment provision and determined to seek a working capital adjustment
threshold in order to ensure that a downward adjustment would not be made unless
at least $2 million would remain with the Company following such adjustment.
On February 19, 2018, OMM sent a
further updated draft of the Share Purchase Agreement and an updated draft of
the Disclosure Schedules to the Special Committee, Messrs. Kelly, Tassiopoulos
and Kalbfleisch, Ms. Yeh, Davies and Cooley. Later that same day, OMM sent a
further updated draft of the Share Purchase Agreement to the Special Committee,
Messrs. Kelly, Tassiopoulos and Kalbfleisch, Ms. Yeh, Davies and Cooley.
Also on February 19, 2018, the
Special Committee held a meeting in which representatives of Davies were
present. The meeting was held in separate portions during which determined
individuals and entities were invited to participate at the initiative of the
Special Committee. At the first portion of such meeting, the Special Committee
discussed the financial situation of the Company with Messrs. Kelly and
Tassiopoulos, including its various short-term liabilities. Following such
discussion, Mr. Kelly was excused from the meeting. The Special Committee then
had an extensive discussion with Mr. Tassiopoulos about the ability of the
Company to continue with the retained businesses following the Share Purchase,
including as a going concern. Thereafter, Roth Capital presented its oral
fairness opinion, followed by a question and answer session with Roth Capital on
the conclusion of the Fairness Opinion and the process conducted in order to
reach such conclusion. Finally, the Special Committee further discussed the
draft of the Share Purchase Agreement and the contemplated transaction with
Purchaser.
On February 20, 2018, the Special
Committee, Messrs. Kelly and Tassiopoulos, Ms. Yeh, Davies, Stikeman Elliott
LLP, the Companys outside Canadian counsel, Cooley and OMM participated in a
discussion regarding the Share Purchase Agreement and the Share Purchase.
Shortly after the discussion, OMM circulated an updated draft of the Share
Purchase Agreement to the participants in such discussion.
On the same day, the Special
Committee met to review the draft Share Purchase Agreement with Davies and
discuss some of the material provisions thereof, including the ability of the
Company to terminate the Share Purchase Agreement without any penalty, other
than expense reimbursement, in the event of a superior proposal or for any other
reason prior to the Contingency Termination Event. Having undertaken a thorough
review of, and carefully considered, information concerning the Share Purchase
and the Fairness Opinion and after consulting with Roth Capital and Davies, the
Special Committee determined that the Share Purchase is in the best interests of
the Company and is fair to the Company and the Shareholders and unanimously
recommended that the Board approve the Share Purchase and that the Shareholders
vote in favor of the Transaction Resolution.
27
Later on February 20, 2018, at a
meeting duly called in respect of which notice was waived, the Board (with Eric
Kelly recusing himself from the deliberations and voting), upon the unanimous
recommendation of the Special Committee and after consulting with its legal
advisor, unanimously determined that the Share Purchase is advisable and is
fair to, and in the best interests of, the Company and the Shareholders, and
adopted and declared advisable the Share Purchase, authorized the entering into
of the Share Purchase Agreement and the performance by the Company of its
obligations under the Share Purchase Agreement, and recommended that the
Shareholders vote in favor of the Transaction Resolution.
On February 20, 2018, each of the
Company, Overland Storage and Purchaser entered into the Share Purchase
Agreement.
Special Committee Recommendation
Having undertaken a thorough
review of, and carefully considered, information concerning the Share Purchase
and the Fairness Opinion and after consulting with independent financial and
legal advisors, the Special Committee determined that the Share Purchase is in
the best interests of the Company and is fair to the Company and the
Shareholders and unanimously recommended that the Board approve the Share
Purchase and that the Shareholders vote in favor of the Transaction
Resolution.
The Special Committee is of the
opinion that the Share Purchase process affords satisfactory procedural fairness
to the Company and the Shareholders, insofar as:
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the Special Committee retained and relied on its own
legal advisor and independent financial advisor;
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the Company has previously conducted a public
solicitation process and formal market check prior to entering into the
Share Purchase Agreement, which, as of the date hereof, has not produced
any other acquirers of the Company or Overland Storage or any other
relevant alternative transaction;
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the Company (including in consultation with the Special
Committee) conducted arms-length negotiations with Purchaser of the key
economic terms of the Share Purchase Agreement and oversaw the negotiation
of other material terms of the Share Purchase Agreement and the Share
Purchase;
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after negotiations with Purchaser, the Company concluded
that the Purchase Price was the highest price that could be obtained from
Purchaser and that further negotiation could have caused Purchaser to
withdraw its proposal, thereby leaving Shareholders without an opportunity
to evaluate and vote in respect of the Share Purchase;
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the Transaction Resolution must be approved by the
affirmative vote of at least (i) 66 2/3% of votes cast by the Shareholders
represented in person or by proxy at the Special Meeting, and (ii) a
simple majority of the votes cast by the Minority Shareholders represented
in person or by proxy at the Special Meeting;
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Registered Shareholders may, upon compliance with certain
conditions and in certain circumstances, exercise Dissent Rights and
receive fair value for their Common Shares as determined by a court;
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the Share Purchase Agreement provides that, prior to the
occurrence of the Contingency Termination Event, the Company is not
prohibited from engaging in discussions or negotiations with any third
party in connection with any alternative transaction to the Share Purchase
and following the occurrence of the Contingency Termination Event,
provides that the Company is prohibited from soliciting an alternative
acquisition proposal from a third party or entering into negotiations or
discussions regarding an alternative acquisition proposal, subject to
certain exceptions; and
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the Share Purchase Agreement provides that prior to the
occurrence of the Contingency Termination Event, the Company is allowed to
terminate the Share Purchase Agreement for any reason or for no reason,
which would include terminating the Share Purchase Agreement to accept an
alternative transaction and that following the occurrence of the
Contingency Termination Event and subject to certain limitations, the
Share Purchase Agreement permits the Board to make an adverse
recommendation to the Shareholders or cause the Company to terminate the
Share Purchase Agreement; provided, however, that the Company will be
obligated to pay a termination fee in such circumstance. For more information,
see The Share Purchase AgreementTermination Fee Payable by Sphere 3D.
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28
Reasons for the Recommendations
In making their determination,
the Special Committee considered the terms of the Share Purchase Agreement, as
well as other possible strategic alternatives. As part of their evaluation, the
Special Committee considered the risks, timing and uncertainties of each of the
limited strategic alternatives potentially available to the Company, as well as
financial information prepared by the Companys senior management team. In
evaluating the Share Purchase, the Special Committee consulted with an outside
financial advisor, outside legal counsel and the Companys senior management
team, and considered a number of factors. These factors included, but were not
limited to, the following factors, which the Special Committee viewed as
supporting their respective determinations (which factors are not necessarily
presented in order of relative importance):
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Certainty of Value
. The Special Committee
considered that the Purchase Price to be received by the Company will
consist of cash, which provides the Company with flexibility to repay its
outstanding obligations under the Opus Credit Agreement and its
obligations under the FBC Note, which are scheduled to mature on March 31,
2018. The Special Committee believed that, based upon all of the other
factors considered by the Special Committee after discussion with the
Companys management, financial advisor and legal counsel, the Share
Purchase represented the best reasonably attainable value for Overland
Storage.
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Market Check
. The Company previously conducted a
public solicitation process and formal market check prior to entering
into the Share Purchase Agreement.
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Risks Related to the Current Debt Situation
. The
Special Committee considered the obligations of the Company under the Opus
Credit Agreement and the FBC Note and the expected maturity dates
thereunder. The Special Committee also considered the other liabilities of
the Company and Overland Storage, including the MFV Note, which will
become due and payable in accordance with its terms as a result of the
repayment of the outstanding obligations under the Opus Credit Agreement
and the FBC Note. Finally, the Special Committee considered the potential
failure for the Company to continue to operate as a going concern if the
current debt situation is not positively resolved.
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Risks Related to Other Alternatives for the Shares of
Overland Storage
. The Special Committee considered its familiarity
with the Companys business, financial condition, results of operations,
intellectual property, marketing prowess, management and competitive
position and prospects, as well as current industry, economic and stock
and credit market conditions. The Special Committee also considered
certain strategic alternatives to the Share Purchase, as well as the
possibility of not engaging in a transaction at all. The Special Committee
also considered the benefits and potential risks, including execution
risks, of pursuing other strategic alternatives available to the Company.
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Ability to Consider Alternative Transactions and to
Terminate the Share Purchase Agreement
. The Special Committee noted
that the Share Purchase Agreement contains provisions only prohibiting the
Company from soliciting an alternate acquisition proposal from a third
party for the shares of Overland Storage or entering into negotiations or
discussions regarding an alternative acquisition proposal upon a
Contingency Termination Event. In addition, after a Contingency
Termination Event, if the Board determines in good faith (after
consultation with its financial and legal advisors) that an unsolicited
acquisition proposal would involve a transaction more favorable for the
Company or its Shareholders from a financial point of view than the
transactions contemplated by the Share Purchase Agreement, the Board is
permitted to terminate the Share Purchase Agreement and accept the
superior acquisition proposal (subject to the payment of the termination
fee, as described under the heading The Share Purchase
AgreementTermination Fee).
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Ability to Change Recommendation to Shareholders
.
The Special Committee noted that, upon the occurrence of a Contingency
Termination Event and subject to certain limitations set forth in the
Share Purchase Agreement, if the Board determines in good faith, after
consultation with its outside legal counsel and in response to an
unsolicited, written
bona fide
acquisition proposal that did not
result from a material breach of the Companys non-solicitation
obligations under the Share Purchase Agreement, that such acquisition
proposal is a superior proposal and the failure to take such action would
be reasonably likely to result in a breach of its fiduciary duties under
applicable law, the Board may make an adverse recommendation change or
cause the Company to terminate the Share Purchase Agreement in order to
accept the superior proposal, subject to complying with certain notice and other specified
conditions set forth in the Share Purchase Agreement. The Special Committee also
noted that the exercise of this right would give Purchaser the right to
terminate the Share Purchase Agreement and require us to pay the termination fee
to Purchaser.
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29
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Termination Fees
. The Special Committee considered
the termination fee to be paid to Purchaser if the Share Purchase
Agreement is terminated after the occurrence of the Contingency
Termination Event and under certain circumstances specified in the Share
Purchase Agreement. Accordingly, the Special Committee believed that a
termination fee of this size for the Share Purchase would not, in and of
itself, unduly deter a third party from making a superior proposal or
inhibit the Board from evaluating, negotiating and, if appropriate,
terminating the Share Purchase Agreement and approving a superior
proposal.
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Remedies Available to the Company and Termination
Rights
. The Special Committee noted the Company could terminate the
Share Purchase Agreement if Purchaser were to breach or fail to perform
any of the representations, warranties, covenants or other agreements
contained in the Share Purchase Agreement, which breach has prevented or
would prevent the satisfaction of certain of the condition to the Closing,
and that prior to the Contingency Termination Event, the Company could
terminate the Share Purchase Agreement for any reason or for no reason,
including terminating the Share Purchase Agreement to accept an
alternative transaction.
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Likelihood of Consummation.
The Special Committee
considered the likelihood that the Share Purchase would be completed,
including its belief that there would not be regulatory impediments to the
transaction.
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Fairness Opinion
. The Special Committee considered
the Fairness Opinion concluding that, as of the date of such opinion, and
based upon and subject to the analysis, assumptions, qualifications and
limitations set forth in the Fairness Opinion, that the Purchase Price to
be received by the Company pursuant to a near final version of the
proposed Share Purchase Agreement is fair, from a financial point of view,
to the Company.
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Ability of the Company to Continue with the Merged
Business and SNAP Business
. The Special Committee considered the
opportunity represented by the current integrated systems market size and
the ability of the Company to continue with its converged and
hyperconverged infrastructure products and professional services business
under its HVE brand, its proprietary virtualization and container software
business, and the SNAP network attached storage business.
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The Special Committee also
considered a variety of risks and other potentially negative factors relating to
the transaction, including the following:
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Purchase Price May Be Insufficient to Pay
Obligations
. The Special Committee considered that the Purchase Price
may be insufficient to pay off all of the amounts owed by the Company
under Opus Credit Agreement, the FBC Note and the MFV Note, and the other
liabilities and transaction expenses. It is possible that the net proceeds
will not be sufficient to pay all of the above debts, liabilities and
expenses or that there will be enough cash or working capital in the
Company to fund its continuing operations. Accordingly, the Company may
need to raise additional capital through debt or equity financings before,
at or around the time of the Closing, failing which the Company may not be
able to continue to operate as a going concern. For more information, see
Risk Factors Relating to the Proposal to Approve the Transaction
Resolution.
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Financing Risk
. The risk that Purchasers closing
condition of the Share Purchase that the Financing be consummated will not
be satisfied or that other events arise which would prevent Purchaser from
consummating the Share Purchase.
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Future Growth and Risk Profile
. The Special
Committee considered the fact that if the transaction is consummated, the
Company and its Shareholders will no longer participate in the future
growth of Overland Storage, including any growth resulting from efforts
already undertaken by the Company related to the continued development of
Overland Storage.
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Ability of the Company to operate without Overland as
a stand-alone business.
The Special Committee considered that the
Company may not have the capacity to operate without its main asset and
revenue driver, and the fact that certain key members of the management
team of the Company will become employees of Purchaser following closing
of the Share Purchase.
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30
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Risk of Non-Completion
. The Special Committee
considered the risk that the transaction might not be completed and the
effect of the resulting public announcement of termination of the Share
Purchase Agreement on:
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the market price of the Common Shares. In that regard,
the market price could be affected by many factors, including (without
limitation) (i) the reason or reasons why the Share Purchase Agreement was
terminated and whether such termination resulted from factors adversely
affecting the Company, and (ii) the possibility that, as a result of the
termination of the Share Purchase Agreement, the marketplace would
consider the Common Shares to be an unattractive acquisition candidate;
and
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the Companys ability to attract and retain key
personnel.
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Possible Payment of Termination Fee
. The Special
Committee considered the termination fee that would be payable by us to
Purchaser if the Share Purchase Agreement was to be terminated in certain
circumstances. The Special Committee believed that the termination fee was
customary and reasonable and would not unduly preclude a third party from
making a superior proposal in accordance with the Share Purchase
Agreement.
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Possible Disruption of the Business
. The Special
Committee considered the possible disruption to the Company and Overland
Storage that might result from the announcement of the transaction and the
resulting distraction of the attention of the Company management and
employees. The Special Committee also considered the fact that the Share
Purchase Agreement contains certain customary limitations regarding the
operation of Overland Storage during the period between the signing of the
Share Purchase Agreement and the completion of the Share Purchase. See
The Share Purchase AgreementConduct of the Business prior to Closing.
The Special Committee believed that such limitations were customary for
transactions similar to the Share Purchase and appropriately tailored to
the specific requirements of the operation of Overland Storage.
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The foregoing discussion
summarizes the material factors considered by the Special Committee in their
consideration of the Share Purchase. In view of the wide variety of factors
considered, and the complexity of these matters, the Special Committee did not
find it practicable to quantify or otherwise assign relative weights to the
foregoing factors. In addition, individual members of the Special Committee may
have assigned different weights to various factors.
Board of Directors Recommendation
After careful consideration, our
Board of Directors, upon the unanimous recommendation of the Special Committee
and after consulting with its legal and financial advisors, has unanimously
(with Eric Kelly recusing himself from the deliberations and voting) determined
that the Share Purchase is advisable and is fair to, and in the best interests
of, the Company and the Shareholders, and adopted and declared advisable the
Share Purchase, authorized the entering into of the Share Purchase Agreement and
the performance of the Company of its obligations under the Share Purchase
Agreement, and recommended that the Shareholders vote in favor of the
Transaction Resolution.
In adopting the Special
Committees recommendations and concluding that the Share Purchase is advisable
and fair to, and in the best interests of, the Company and the Shareholders, the
Board consulted with outside advisors, considered and relied upon the same
factors and considerations that the Special Committee relied upon, as described
above, and adopted the Special Committees analysis in its entirety.
Fairness Opinion
Pursuant to an engagement letter,
dated February 14, 2017, the Special Committee retained Roth Capital to render
an opinion to the Special Committee as to the fairness, from a financial point
of view, of the Purchase Price to be received by the Company in the Share
Purchase.
On February 19, 2018, Roth
Capital rendered its oral opinion, subsequently confirmed in writing, to the
Special Committee that, as of such date, and based upon and subject to the
various assumptions made, procedures followed, matters considered and
qualifications and limitations set forth in the Fairness Opinion, the Purchase
Price to be received by the Company in connection with the Share Purchase is
fair, from a financial point of view, to the Company. The Purchase Price to be received by the Company in connection with the Share Purchase was negotiated between the Company and Purchaser and set forth in the draft Share Purchase Agreement provided to Roth Capital on February 16, 2018.
31
The full text of the Fairness
Opinion, dated February 19, 2018, is attached to this Proxy Statement as Annex D
and is incorporated by reference herein. Shareholders are urged to read the
entire Fairness Opinion carefully and in its entirety to learn about the
assumptions made, procedures followed, matters considered and limitations on the
scope of the review undertaken by Roth Capital in rendering such opinion. The
analysis performed by Roth Capital should be viewed in its entirety; none of the
methods of analysis should be viewed in isolation when reaching a conclusion on
whether the Purchase Price was fair, from a financial point of view. The
Fairness Opinion addresses only the fairness of the Purchase Price to be
received by the Company in the Share Purchase, from a financial point of view,
as of the date of the opinion, and does not address the merits of the Companys
underlying business decision to proceed with or effect the Share Purchase or the
likelihood of consummation of the Share Purchase. Roth Capital expressed no
opinion or recommendation to the Special Committee whether the Company should
proceed with the Share Purchase. The Fairness Opinion was directed to the
Special Committee in connection with its consideration of the Share Purchase and
was not intended to be, and does not constitute, a recommendation to any
Shareholder as to how such Shareholder should vote with respect to the Share
Purchase or any other matter.
In arriving at the Fairness Opinion,
Roth Capital:
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i)
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reviewed the last draft of the Share Purchase Agreement provided to Roth Capital on February 16, 2018;
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ii)
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reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets,
liabilities and prospects of Overland Storage that were furnished to Roth
Capital by management of the Company;
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iii)
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conducted discussions with members of senior management
of the Company concerning the matters described in clause (ii)
above;
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iv)
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conducted discussions with members of Investment Firm B and Duff
& Phelps Corp. (
Duff & Phelps
) regarding each of their
work on behalf of the Company;
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v)
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reviewed publicly available information relating to the
Company and Overland Storage;
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vi)
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reviewed the financial terms, to the extent publicly
available, of certain acquisitions that Roth Capital deemed
relevant;
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vii)
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reviewed the financial terms, to the extent publicly
available, of certain public companies that Roth Capital deemed relevant;
and
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viii)
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performed such other analyses, including detailed
financial analyses, and considered such other factors as Roth Capital
deemed appropriate for the purpose of reviewing the proposed Share
Purchase and rendering the Fairness Opinion.
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For purposes of rendering the
Fairness Opinion, Roth Capital relied upon and assumed, without assuming
liability or responsibility for independent verification, the accuracy and
completeness of all information that was publicly available or was furnished, or
otherwise made available, to Roth Capital or discussed with or reviewed by or
for Roth Capital. Roth Capital further assumed that the financial information
provided by the Company was prepared on a reasonable basis in accordance with
industry practice, and that management of the Company was not aware of any
information or facts that would make any information provided to Roth Capital
incomplete or misleading. Without limiting the generality of the foregoing, for
the purpose of the Fairness Opinion, Roth Capital assumed that with respect to
financial forecasts, estimates and other forward-looking information reviewed by
it, that such information was reasonably prepared based on assumptions
reflecting the best currently available estimates and judgments of the
management of the Company as to the expected future results of operations and
financial condition of Overland Storage. Roth Capital did not express any
opinion as to any such financial forecasts, estimates or forward-looking
information or the assumptions on which they were based. In addition, with
respect to such financial forecasts provided to and examined by Roth Capital,
Roth Capital noted that projecting future results of any company, partnership,
venture or asset is inherently subject to uncertainty.
In connection with the Fairness
Opinion, Roth Capital assumed and relied upon, without independent verification,
the accuracy and completeness of all of the financial, legal, regulatory, tax,
accounting and other information provided to, discussed with or reviewed by Roth
Capital. The Fairness Opinion did not address any legal, regulatory, tax or
accounting issues. In arriving at its conclusion in the Fairness Opinion, Roth
Capital assumed that the executed Share Purchase Agreement would be in all
material respects identical to the most recent draft of the Share Purchase
Agreement reviewed by Roth Capital.
32
Roth Capital relied upon and assumed, without independent
verification, that (i) the representations and warranties of all parties set
forth in the Share Purchase Agreement and all related documents and instruments
that were referred to therein were true and correct, (ii) each party to the
Share Purchase Agreement would fully and timely perform all of the covenants and
agreements required to be performed by such party, (iii) the Share Purchase
would be consummated pursuant to the terms of the Share Purchase Agreement
without any waiver or amendments thereto or delay of any terms or conditions
thereof, and (iv) all conditions to the consummation of the Share Purchase would
be satisfied without waiver by any party of any conditions or obligations
thereunder. Additionally, Roth Capital assumed that in connection with the
receipt of all the necessary regulatory or other approvals and consents required
for the proposed Share Purchase, no delays, limitations, conditions or
restrictions would be imposed that would have a material adverse effect on the
Company, Overland Storage or the contemplated benefits of the Share Purchase.
In arriving at its conclusion in
the Fairness Opinion, Roth Capital did not perform any appraisals or valuations
of any specific assets or liabilities (fixed, contingent or other) of the
Company or Overland Storage and was not furnished or provided with any such
appraisals or valuations. Without limiting the generality of the foregoing, Roth
Capital undertook no independent analysis of any pending or threatened
litigation, regulatory action, possible unasserted claims or other contingent
liabilities to which the Company, Overland Storage or any of their respective
affiliates was a party or may be subject, and at the direction of the Special
Committee and with its consent, the Fairness Opinion made no assumption
concerning, and therefore did not consider, the possible assertion of claims,
outcomes or damages arising out of any such matters (other than to the extent
set forth in the Share Purchase Agreement or the financial information provided
to Roth Capital by or on behalf of the Company).
The Fairness Opinion was based
upon the information available to Roth Capital and facts and circumstances as
they existed and were subject to evaluation on the date thereof; events
occurring after the date thereof could materially affect the assumptions used in
preparing such opinion. Roth Capital did not express any opinion as to the price
at which the Companys common shares may trade following announcement of the
Share Purchase or at any future time. Roth Capital did not undertake to reaffirm
or revise the Fairness Opinion or otherwise comment upon any events occurring
after the date thereof and expressly disclaimed any such obligation to update,
revise or reaffirm the Fairness Opinion subsequent to the date thereof.
The Fairness Opinion addressed
only the fairness, from a financial point of view and as of the date thereof, of
the Purchase Price to be received by the Company in the Share Purchase. The
Fairness Opinion did not express any view on any other aspect of the Share
Purchase, including, without limitation, the fairness of the Share Purchase to
the holders of any class of securities, creditors or other constituencies of the
Company. In addition, Roth Capital did not express an opinion about the fairness
of the amount or nature of any compensation payable or to be paid to any of the
officers, directors or employees of the Company, or any class of such persons,
in connection with the Share Purchase. The issuance of the Fairness Opinion was
approved by Roth Capitals fairness opinion committee.
Summary of Material Financial Analysis
The following is a summary of the
material financial analyses performed by Roth Capital and reviewed by the
Special Committee in connection with the Fairness Opinion and does not purport
to be a complete description of the financial analyses performed by Roth
Capital. The rendering of an opinion is a complex analytic process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and the application of those methods to the particular
circumstances. Therefore, this summary does not purport to be a complete
description of the analyses performed by Roth Capital or of its presentation to
the Special Committee on February 19, 2018. The order of analyses described
below does not represent the relative importance or weight given to those
analyses by Roth Capital. Some of the summaries of the financial analyses
include information presented in tabular format. In order to fully understand
Roth Capitals financial analyses, the tables must be read together with the
text of each summary, as the tables alone do not constitute a complete
description of the financial analyses. Considering the data below without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of Roth Capitals financial analyses.
In performing its analyses, Roth
Capital made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of the Company, Overland Storage or any other parties to the Share
Purchase Agreement. Roth Capital does not assume any responsibility if future
results are materially different from those discussed. Any estimates contained
in these analyses are not necessarily indicative of actual values or predictive
of future results or values, which may be significantly more or less favorable
than as set forth below.
Selected Publicly Traded
Comparable Companies Analysis.
In order to assess how the public market
values shares of publicly traded companies similar to Overland Storage, Roth
Capital reviewed and compared certain financial information relating to Overland Storage with selected companies, which, in
the exercise of its professional judgment and based on its knowledge of the
industry, Roth Capital deemed similar to Overland Storage. Although none of the
selected companies is identical to Overland Storage, Roth Capital selected these
companies because they had publicly traded equity securities and were deemed to
be similar to Overland Storage in one or more respects, including the nature of
their business, size, financial performance, geographic concentration and
listing jurisdiction. The selected comparable companies are:
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Company
|
Ticker
|
FalconStor
|
FALC
|
Qualstar
|
QBAK
|
Netlist, Inc.
|
NLST
|
Quantum
|
QTM
|
For Overland Storage and each of
the selected companies, Roth Capital calculated and compared various financial
multiples and ratios of Overland Storage and the selected comparable companies
based on each respective companys public filings for historical information and
third-party research estimates for forecasted information.
In its review of the selected
companies, Roth Capital considered, among other things, (i) market
capitalizations (computed using closing share prices as of February 16, 2018),
(ii) enterprise values (
EV
), (iii) EV as a multiple of reported
earnings before interest, tax, depreciation and amortization (
EBITDA
)
for the latest twelve-month period (
LTM
) as of September 30, 2017 and
estimated EBITDA for calendar years 2017 and 2018, (iv) projected growth rates
for calendar years 2016 to 2017 and 2017 to 2018, and (v) LTM gross margins,
EBITDA margins and net income margins. This information and the results of these
analyses are summarized in the following table:
|
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Diluted
|
Share
Price
|
Mkt. Cap
|
TEV
|
EV/Revenue
|
Proj. Growth
|
LTM
Margins (%)
|
Company
|
Ticker
|
Shares
|
02/16/18
|
02/16/18
|
02/16/18
|
LTM
|
CY 2017
|
CY
2018
|
16-17
|
17-18
|
Gross
|
EBITDA
|
Net
|
FalconStor
|
FALC
|
44.6
|
$0.19
|
$8.2
|
$6.5
|
0.2x
|
NA
|
NA
|
NA
|
NA
|
75.8
|
(1.5)
|
(5.8)
|
Qualstar
|
QBAK
|
2.0
|
$11.14
|
$22.7
|
$18.1
|
1.9x
|
NA
|
NA
|
NA
|
NA
|
33.6
|
(3.0)
|
(4.5)
|
Netlist, Inc.
|
NLST
|
70.4
|
$0.28
|
$19.5
|
$28.2
|
0.8x
|
0.7x
|
0.5x
|
210.2%
|
30.0%
|
6.6
|
(30.3)
|
(40.2)
|
Quantum
|
QTM
|
34.7
|
$4.17
|
$144.6
|
$262.8
|
0.5x
|
0.5x
|
0.6x
|
2.2%
|
(2.9%)
|
42.2
|
1.8
|
(1.8)
|
MIN
|
2.0
|
$0.19
|
$8.2
|
$6.5
|
0.2x
|
0.5x
|
0.5x
|
2.2%
|
(2.9%)
|
6.6
|
(30.3)
|
(40.2)
|
25TH PCTL
|
26.5
|
$0.25
|
$16.7
|
$15.2
|
0.5x
|
0.6x
|
0.5x
|
54.2%
|
5.3%
|
26.8
|
(9.8)
|
(14.4)
|
MEDIAN
|
39.6
|
$2.22
|
$21.1
|
$23.1
|
0.7x
|
0.6x
|
0.6x
|
106.2%
|
13.5%
|
37.9
|
(2.2)
|
(5.1)
|
75TH PCTL
|
51.0
|
$5.91
|
$53.2
|
$86.8
|
1.1x
|
0.7x
|
0.6x
|
158.2%
|
21.8%
|
50.6
|
(0.6)
|
(3.8)
|
MAX
|
70.4
|
$11.14
|
$144.6
|
$262.8
|
1.9x
|
0.7x
|
0.6x
|
210.2%
|
30.0%
|
75.8
|
1.8
|
(1.8)
|
DP&A
|
$45.0
|
0.6x
|
0.7x
|
0.6x
|
(2.4%)
|
7.7%
|
33.8
|
12.8
|
NA
|
Notes to the table:
1.
|
Source: Capital IQ. Projected financials based on median
analyst estimates.
|
2.
|
Enterprise Value = Market Cap + Debt
Cash.
|
Roth Capital noted that, although
the selected companies were used for comparison purposes, no business of any
selected company was either identical or directly comparable to Overland
Storages business. Accordingly, Roth Capitals comparison of selected companies
to Overland Storage and analyses of the results of such comparisons was not
purely mathematical, but instead necessarily involved complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the relative values of the selected companies
and Overland Storage.
Roth Capital noted that the
resulting EV to LTM revenue multiple at the Purchase Price was between the
twenty-fifth (25
th
) percentile and the median of the various selected
publicly traded comparable company multiples. Roth Capital noted that the
resulting EV to 2017 and EV to 2018 revenue multiples at the Purchase Price were
at the high end of the various selected publicly traded comparable company
multiples.
Selected Precedent Transaction
Analysis.
Roth Capital reviewed and compared the purchase prices and
financial multiples paid in selected other transactions, primarily in the data
storage, technology hardware, and storage and peripherals systems software spaces, from January 1, 2012 to February 18,
2018 that had publicly available data and that Roth Capital, in the exercise of
its professional judgment, determined to be relevant. For each of the selected
transactions, Roth Capital calculated and compared the resulting EV in the
transaction as a multiple of LTM revenue and LTM EBITDA. Such multiples for the
selected transactions were based on publicly available information at the time
of the relevant transaction. The selected transactions analyzed are set out in
the following table:
34
Closed
Date
|
Target
|
Buyer
|
Transaction
Value ($M)
|
EV/LTM
REV
|
EV/LTM
EBITDA
|
Target Description
|
11/10/17
|
ICOS S.p.A.
|
Computer Gross Italia
|
$5.3
|
0.1x
|
6.4x
|
Storage solutions
|
04/24/17
|
Violin Systems
|
Soros Fund
|
$14.5
|
0.4x
|
-
|
Memory based storage systems
|
11/01/16
|
Silicon Graphics
|
Hewlett Packard
|
$267.9
|
0.5x
|
NM
|
Enterprise class storage hardware
|
10/05/16
|
Hutchinson Technology
|
Headway Technologies
|
$243.8
|
1.0x
|
14.9x
|
Enterprise class storage
hardware
|
08/10/15
|
Imation, RDX Product lines
|
Overland Storage
|
$6.7
|
0.5x
|
-
|
Storage disk drives
|
04/01/15
|
SAMT Co.
|
Samji Electronics
|
$182.2
|
0.2x
|
-
|
Flash and disk storage products
|
01/01/15
|
Agile Technologies
|
Majesco
|
$8.8
|
1.0x
|
-
|
SRAM and disk drives
|
12/01/14
|
Overland Storage
|
Sphere 3D
|
$69.7
|
0.7x
|
-
|
Enterprise storage solutions
|
03/31/14
|
Xyratex
|
Seagate Technology
|
$272.2
|
0.3x
|
14.1x
|
Enterprise storage solutions
|
01/21/14
|
Tandberg
|
Overland Storage
|
$42.4
|
0.7x
|
-
|
Data storage and protection
solutions
|
09/12/13
|
STEC, Inc.
|
HGST
|
$208.5
|
1.5x
|
-
|
Enterprise solid state drives
|
01/01/13
|
Proware Technology Corp.
|
Unifosa
|
$12.1
|
0.8x
|
NM
|
Drive storage solutions
|
08/03/12
|
LaCie
SA
|
Seagate Technology
|
$89.7
|
0.3x
|
3.4x
|
Network storage products
|
MIN
|
$5.3
|
0.1x
|
3.4x
|
25TH PCTL
|
$12.1
|
0.3x
|
5.7x
|
MEDIAN
|
$86.4
|
0.5x
|
10.3x
|
75th PCTL
|
$208.5
|
0.8x
|
14.3x
|
MAX
|
$272.2
|
1.5x
|
14.9x
|
|
|
|
|
DP&A
|
$45.0
|
0.6x
|
5.9x
|
Notes to the table:
1.
|
Source: Capital IQ and company public filings.
|
2.
|
Transactions greater than $500 million were excluded from
the analysis and EV/EBITDA multiples greater than 30x are considered not
meaningful ("
NM
").
|
3.
|
DP&A means the data protection and archive business
of Overland Storage being sold by the Company in the Share
Purchase.
|
Roth Capital noted that, although
the selected transactions were used for comparison purposes, no business of any
selected company was either identical or directly comparable to Overland
Storages business. Accordingly, Roth Capitals comparison of selected companies
to Overland Storage and analyses of the results of such comparisons was not
purely mathematical, but instead necessarily involved complex considerations and
judgments concerning differences in financial and operating characteristics and
other factors that could affect the relative values of the selected companies
and Overland Storage.
Roth Capital noted that the EV to
LTM revenue multiple at the Purchase Price was at the high end of the multiples
for the comparable transactions. Roth Capital noted that the EV to LTM EBITDA
multiple at the Purchase Price was between the twenty-fifth (25
th
)
percentile and the median of the multiples for the comparable transactions.
Discounted Cash Flow
Analysis
. Roth Capital performed a discounted cash flow analysis on the
DP&A Business of Overland Storage being sold by the Company in the Share
Purchase by calculating ranges of the estimated net present value of the
unlevered, after-tax free cash flows of the DP&A Business that the Company
forecasted to generate from March 1, 2018 through fiscal year 2020. All of the
information used in Roth Capitals analysis was based on publicly available
sources and the financial projections provided by the Companys management. The
following table sets forth the free cash flows and implied EV calculations used
in Roth Capitals analysis:
35
|
FY
|
FY
|
FY
|
|
|
|
Cash Flow Projections
|
2018E
|
2019E
|
2020E
|
|
DCF Assumptions &
Output
|
|
|
|
|
|
|
|
|
Revenue
|
$74.3
|
$85.9
|
$97.0
|
|
Discount
Rate:
|
19.0%
|
EBITDA
|
$9.8
|
$12.3
|
$14.2
|
|
|
|
|
|
|
|
|
Terminal
Growth Rate
3
|
3.0%
|
EBIT
|
$9.8
|
$12.3
|
$14.2
|
|
Terminal
Cash Flow
|
$9.0
|
NOPAT
2
|
$7.3
|
$9.2
|
$10.6
|
|
Terminal
Value
|
$57.8
|
Capex
|
($0.2)
|
($0.2)
|
($0.2)
|
|
PV of
Terminal Value
|
$35.3
|
(Increase)/Decrease
in NWC
|
($5.0)
|
($1.5)
|
($1.4)
|
|
|
|
|
|
|
|
|
Sum of
PV of Cash Flows
|
$13.6
|
Unlevered Free
Cash Flow
|
$2.1
|
$7.5
|
$9.0
|
|
One-time
Cost Associated with Achieving Assumptions
5
|
($0.8)
|
PV of Free Cash
Flow
|
$1.6
|
$5.9
|
$6.0
|
|
|
|
|
|
|
|
|
|
|
End of Year
Discount Period:
|
0.8
|
1.8
|
2.8
|
|
|
|
Mid-Year Discount Period:
|
0.4
|
1.3
|
2.3
|
|
Implied EV
|
$48.1
|
Notes to the table:
1.
|
Assumes a valuation date of 03/01/18 and a mid-year
discount period.
|
2.
|
NOPAT = EBIT x (1-Tax Rate), where Tax Rate = 25% after
taking net operating losses into consideration. Federal long-term tax
exempt rate of 1.97% gives $0.9M of tax protection in future
years.
|
3.
|
Average historical GDP growth rate
|
4.
|
In order to estimate the pro forma operating results of
the DP&A Business, the Company engaged Duff & Phelps to provide a
quality of earnings (
QoE
) report. The draft Duff & Phelps QoE
report is dated January 15, 2018. Managements projected financial results
were prepared on a consistent basis with these assumptions. These
assumptions are stated below:
|
|
a.
|
Excludes the Sphere 3D and V3 Systems
businesses
|
|
b.
|
Excludes the HVE/Virtualization business
|
|
c.
|
Excludes any impact on the DP&A Business from the
SNAP server product line
|
|
d.
|
Excludes the operating results of services and warranty
offerings related to product lines not part of the carve-out
|
|
e.
|
Excludes headcount expense for employees not part of the
carve-out
|
|
f.
|
Excludes all stock-based compensation expense
|
|
g.
|
Excludes non-headcount, non-facilities expenses
|
|
h.
|
Excludes facilities expense and related costs
|
|
i.
|
Does not include all other one-time
expenses
|
5.
|
Based on discussions with management. Includes cost
related to employee severance, vacation payout, lease change timing,
moving costs and other related expenses.
|
In performing its discounted cash
flow analysis, Roth Capital calculated ranges of the estimated present values of
the unlevered, after-tax free cash flows of the DP&A Business that the
Company forecasted to generate for partial year 2018 to fiscal year 2020 by
applying discount rates ranging from 17.0% to 21.0%, reflecting Roth Capitals
estimates of the weighted-average cost of capital (
WACC
). The WACC was
calculated by adding (i) the estimated market value of equity as a percentage of
the total market value of Overland Storage's capital multiplied by Overland
Storage's estimated cost of equity, and (ii) the estimated market value of debt
as a percentage of the total market value of Overland Storage's capital
multiplied by Overland Storage's estimated after-tax market cost of debt. The
estimated market value of Overland Storages debt and equity were calculated
using the average debt to equity ratios of the comparable companies. The
estimated cost of equity was calculated using the Capital Asset Pricing Model
which took into account the betas of comparable companies, the risk-free rate, a
historical equity market risk premium and a historical small capitalization risk
premium, which risk premiums were sourced from the 2015 Valuation Handbook. The
estimated cost of debt was provided by management of the Company. The following
table sets forth Overland Storages WACC calculation:
36
WACC
Calculation
|
|
|
|
|
|
|
a)
|
Beta was found using Capital IQ. Only comparable
companies that had a minimum of 60 months of trading history were used.
Capital IQ calculates Beta on a monthly basis. ROTH uses mid-year
conventions to discount cash flows as ROTH assume that cash flows come in
continuously throughout the year. Assume a valuation date of 03/01/18
|
Step 1 -
Calculate Average Portfolio Beta (a)
|
|
Calculated Average Portfolio Equity Beta
|
0.31
|
|
|
|
|
Step 2 -
Unlever Portfolio Beta (b)
|
|
Average Debt-to-Equity Ratio
|
75.1%
|
|
|
Average Tax Rate
|
NM
|
b)
|
B(u) = B(l) / (1+(1-Tax Rate) x Debt-to-Equity)
|
Unlevered Average Portfolio Equity Beta
|
NM
|
|
|
|
|
c)
|
Assumes debt as of 12/31/18. Further assumes this amount
of leverage persists as the Company's target leverage ratio.
|
Step 3 - Arrive
at DP&A Equity Beta
|
|
Unlevered Average Portfolio Equity Beta
|
NM
|
d)
|
Effective tax rate provided by management
|
DP&A Debt-to-Equity Ratio (c)
|
75.1%
|
|
|
Effective Tax Rate (d)
|
25.0%
|
e)
|
Source: 10-Year Treasury yield at 02/16/18
|
DP&A Equity Beta
|
2.18
|
f)
|
Source: 2015 Valuation Handbook; 3-28
|
|
|
|
|
Step 4
|
|
g)
|
CAPM Cost Equity Capital Calculation: Risk Free Rate +
(Equity Beta x Equity Risk Premium)
|
Risk Free Rate (e)
|
2.9%
|
Equity Risk Premium (f)
|
7.0%
|
|
|
Levered Equity Beta
|
2.18
|
h)
|
Source: 2015 Valuation Handbook; page 4-10. 10z pctl
|
Cost of Equity Capital (g)
|
18.1%
|
i)
|
Source: Management
|
Size Premium (h)
|
9.5%
|
|
|
DP&A Adjusted Cost of Equity
Capital
|
27.6%
|
j)
|
Weighted Average Cost of Capital = (Debt-to-Capital x
Cost of Debt x (1-Tax Rate)) + (Equity-to-Capital x Cost of Equity
Capital)
|
|
|
Step 5
|
|
|
|
Debt-to-Capital Ratio
|
42.9%
|
|
|
Equity-to-Capital Ratio
|
57.1%
|
|
|
Pre-tax Cost of Debt (j)
|
10.0%
|
|
|
After-tax Cost of Debt
|
7.5%
|
|
|
Cost of Equity Capital
|
27.6%
|
|
|
Weighted Average Cost of Capital
(k)
|
19.0%
|
|
|
Roth Capital used the following companies to calculate the
portfolio beta:
|
|
FalconStor Software, Inc.
|
|
|
Qualstar Corporation
|
|
|
Netlist, Inc.
|
|
|
Quantum Corporation
|
Roth Capital calculated an EV for
the DP&A Business being sold in the Share Purchase by calculating the ranges
of estimated terminal value amounts for the DP&A Business by applying a
range of terminal growth rates of 2.5% to 3.5% to the estimated terminal cash
flow of the DP&A Business being sold in the Share Purchase. The range of
terminal revenue multiples utilized in Roth Capitals discounted cash flow
analysis was based on the revenue multiples of precedent transactions. The range
of estimated present values of these estimated terminal value amounts was then
calculated by applying discount rates ranging from 17.0% to 21.0% . Combining
the total present value of the estimated unlevered free cash flows, the present
value of the terminal values and one-time estimated costs necessary to achieve
the financial projections resulted in the following range of implied EV for the
DP&A Business being sold in the Share Purchase:
Terminal
Growth
Rate
|
WACC
|
|
17.0%
|
18.0%
|
19.0%
|
20.0%
|
21.0%
|
2.5%
|
$53.4
|
$49.9
|
$46.9
|
$44.2
|
$41.8
|
2.8%
|
$54.3
|
$50.6
|
$47.5
|
$44.7
|
$42.3
|
3.0%
|
$55.1
|
$51.3
|
$48.1
|
$45.2
|
$42.7
|
3.3%
|
$56.0
|
$52.1
|
$48.7
|
$45.8
|
$43.2
|
3.5%
|
$56.9
|
$52.9
|
$49.4
|
$46.4
|
$43.7
|
Roth Capital noted that the
Purchase Price was in the range of the implied EV of the DP&A Business being
sold in the Share Purchase based on the discounted cash flow analysis.
General
The description set forth above
does not contain a complete description of the analyses performed by Roth
Capital, but does summarize the material analyses performed by Roth Capital in
rendering the Fairness Opinion. The preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Roth Capital believes
that its analyses and the summary set forth above must be considered as a whole
and that selecting portions of its analyses or of the summary, without
considering the analyses as a whole or all of the factors included in its
analyses, would create an incomplete view of the processes underlying the
analyses set forth in the Fairness Opinion. In arriving at its conclusions in
the Fairness Opinion, Roth Capital considered the results of all of its analyses
and did not attribute any particular weight to any factor or analysis. Instead,
Roth Capital made its determination as to fairness on the basis of its
experience and financial judgment after considering the results of all of its
analyses. The fact that any specific analysis has been referred to in the
summary above is not meant to indicate that this analysis was given greater
weight than any other analysis. In addition, the ranges of valuations resulting
from any particular analysis described above should not be taken to be Roth
Capitals view of the actual value of Overland Storage.
37
As described above, the Fairness
Opinion was only one of many factors considered by the Special Committee and the
Board in making its determination to approve the Share Purchase. Roth Capital
was not requested to and did not solicit any expressions of interest from any
other parties with respect to any acquisition of the DP&A Business being
sold in the Share Purchase or any other business combination with the Company.
The Special Committee engaged
Roth Capital based on Roth Capitals qualifications, experience and reputation
and the Companys past relationship with Roth Capital. Roth Capital is a full
service securities firm engaged in securities trading and brokerage activities,
as well as providing investment banking and other financial services. In the two
years prior to the date of the Fairness Opinion, Roth Capital provided financing
services and financial advisory services to the Company and received $462,500 in
fees in connection with such services. Roth Capital may also seek to provide
financial advisory and financing services to the Company and its affiliates in
the future and would expect to receive fees for the rendering of such services.
As part of the financing and financial advisory services previously rendered to
the Company, Roth Capital has a right of first refusal on certain future
investment banking services, which right it has contractually agreed to waive as
a condition to providing the Fairness Opinion to the Special Committee. As of
the date of the Fairness Opinion, Roth Capital held 200 Common Shares and
warrants to acquire approximately 73,367 Common Shares at $5.00 per share.
In connection with its engagement
by the Special Committee, Roth Capital agreed to receive a fee of $225,000 upon
the delivery of the Fairness Opinion, which is payable in cash, Common Shares (“Fee Shares”) and Fee Shares, which payment in Fee Shares was contingent upon the public
announcement of the Share Purchase. Roth Capital expects to receive additional Common Shares in the
event that its disposition of those shares is less than its fees and expenses
for providing the Fairness Opinion to the Special Committee. These fees were
determined by Roth Capital and proposed to the Special Committee. The Company
has agreed to indemnify Roth Capital against certain liabilities and to reimburse
$21,355 to Roth Capital for certain expenses in connection with its services. In
the ordinary course of business, Roth Capital and its affiliates may acquire,
hold or sell, for Roth Capitals and its affiliates' own accounts and for the
accounts of customers, equity, debt and other securities and financial
instruments (including bank loans and other obligations) of the Company and the
other parties to the Share Purchase, and, accordingly, may at any time hold a
long or a short position in such securities.
Post-Closing Business
If the Share Purchase is
completed, the Company will receive at the Closing $45.0 million in cash,
subject to a working capital adjustment. Following the Share Purchase, our
assets and our remaining liabilities will consist solely of the liabilities
retained in the Asset Transfer.
Upon completion of the Share
Purchase, the Company will continue to sell its converged and hyperconverged
infrastructure products and professional services under its HVE brand, its
proprietary virtualization and container software. The Company is also retaining
the SNAP product family that was originally acquired through its acquisition of
Overland Storage in December of 2014. The Snap family consists of significant
intellectual property, or IP, and a patent portfolio the Company believes can
provide additional value to Shareholders and aligns with the Companys plans to
continue providing integrated systems going forward.
In undergoing its strategic
review, the Company determined that the product portfolio had become too broad,
for a company with the limited financial resources of Sphere 3D, to properly
capitalize on. The Company believes that the sale of Overland Storage (following
the Asset Transfer), which constitutes a sale of the DP&A Business,
addresses this underlying issue that the Company has struggled with for quite
some time.
The Company believes that it will
be in a better position to deliver shareholder value through a dedicated focus
on the Converged and Hyperconverged segments of the integrated systems market.
According to the International Data Corporation, For the full year 2016,
worldwide converged systems market revenues increased 5.8% to $11.3 billion when
compared to 2015 and although decreases in this market segment are
expected by the Company, the Company believes such decrease is more than offset
by the fact that customers are shifting their spending to the other primary
market that the Company is focused on, the Hyperconverged Infrastructure, or HCI
market. The Company believes that HCI will continue to disrupt the traditional
storage and data center markets since it creates substantial value through
simplified management, consolidated resources, reduced costs and, it is
inherently designed to serve as the foundation of a private cloud. According to
Gartner Inc., hyperconverged integrated systems will be the fastest-growing
segment of the overall market for integrated systems, reaching almost $5
billion, which is 24 percent of the market, by 2019. The Company believes that
the total addressable market for its products is more than sufficient to provide
it with room for growth. The Company has also taken steps to prepare for the
next generation of potential disruption by creating its own reference
architecture for open convergence and has a partnership with open convergence
pioneer Datrium.
38
The renewed focus on what the
Company historically referred to as its Virtualization business will facilitate
the connection of the Company with its Shareholder base and will help deliver a
succinct message of who we are, what we do, and why we are better. It will allow
us to focus our efforts on establishing a positive culture of success
corporately by simplifying our messaging both internally and externally.
Certain of our Shareholders have
communicated to us that they have invested in the Company for the potential that
many of our technologically advanced solutions promise; and we believe a number
of our employees have also joined the Company for the same reason. We believe
that the divestiture of a significant portion of our business and assets, while
maintaining ownership of these advanced technologies, allows the Company to
continue to attract not only new investors but also new talent that can help the
Company grow its business in the markets we focus on going forward.
In addition, over the previous 3
years, we believe we have had challenges in dealing with capital market
participants, including analysts, which viewed us as a mini-conglomerate. We
believe that even if they wished to overlook the fact that we had a product
portfolio that required greater financial resources than those available to us,
finding comparable companies to draw valuation conclusions was a challenge. As
such, we believe we were often valued as a storage company, which historically
traded at a lower multiple than our HCI peers. Our sale of the DP&A Business
makes us a pure play for those that are looking to invest in Converged or HCI
providers and allows for a simpler application of comparable metrics and
established mature business modelling for analysts that wish to cover the
Company. We view this as potential benefit for our Shareholders.
Upon completion of the Share
Purchase, we will retain an intellectual property portfolio consisting of over
30 granted patents and another 30 patents pending associated with the product
portfolio that will remain as part of Sphere 3D. These patents encompass many of
our core technologies and provide us with confidence that many of our
differentiated features within the Converged and HCI products and services we
offer our customers are compelling. Our current plan is to continue to build
upon our intellectual property portfolio when the opportunities to do so present
themselves.
Assuming that the Purchase Price
will be sufficient to pay off all of the amounts owed by the Company under the
Opus Credit Agreement, the FBC Note and the MFV Note, the sale of our DP&A
Business will eliminate the debt for borrowed money on our balance sheet. We
believe that capital market participants have perceived us as being in financial
difficulty for almost 2 years. With this as the backdrop, we believe the Company
has struggled to attract new investors on favorable terms to the Company, which
at times has led to financing transactions for the Company with significant
associated dilution. In addition, our debt and the requirement to finance and
refinance the debt has consumed a significant portion of senior managements
time and effort that would otherwise have been focused on operating the
business. In addition to time and effort, our debt levels have meant that we
have significant servicing costs for that debt; in fiscal 2017, our interest
payments were almost $3.0 million. The Company believes that the proceeds from
the sale of the DP&A Business, and subsequent potential elimination of the
debt and its servicing costs, is in the best interest of the Company.
In summary, management believes
that, following the consummation of the Share Purchase, the Company could
benefit from a number of factors including (among others):
|
|
reduced balance sheet risk through the elimination and/or
substantial decrease of its current debt with Opus, FBC Holdings and MFV;
|
|
|
|
|
|
a significantly reduced workforce resulting in lower
operating expenses and greater flexibility;
|
|
|
|
|
|
greater ability to focus on a much smaller segment of the
overall IT marketplace;
|
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|
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simplified value proposition to customers and partners;
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39
|
|
more effective marketing with the reduction in the number
of product lines to support; and
|
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|
|
|
improved valuation metrics through establishing of a new
peer set for analysts and investors.
|
The Company currently intends to
focus its efforts on growing its business within the integrated systems
marketplace and continue to offer its products through a global network of
resellers, as well as direct to customers within certain key accounts.
Upon completion of the Share
Purchase, it is expected that Peter Tassiopoulos, the current President of the
Company, will assume the role of Chief Executive Officer, Joseph ODaniel,
President of Virtualization and Professional Services, will assume the role of
President, and the Company will retain a new Chief Financial Officer with
assistance from Kurt L. Kalbfleisch, the current Chief Financial Officer, on a
transitional basis.
Financing for the Share Purchase
If Purchaser does not obtain debt
and/or equity financing in an amount equal to or greater than the Purchase
Price, then the Share Purchase will not be consummated. Purchaser is obligated
to use its best efforts to obtain such financing for the purpose of paying the
Purchase Price and consummating the Share Purchase.
Interests of Sphere 3Ds Directors and Executive Officers in
the Share Purchase
In considering the
recommendations of the Board and the Special Committee, Shareholders should be
aware that certain of the Companys directors and executive officers may have
interests in the Share Purchase that are different from, or in addition to,
those of our Shareholders generally. These interests may create potential
conflicts of interest. Our Board was aware that these interests existed when it
approved the Share Purchase Agreement and the Share Purchase. Except as
described below, such persons have, to the knowledge of Sphere 3D, no material
interest in the Share Purchase apart from those of Shareholders generally.
Interests of Certain Sphere 3Ds Directors and Executive
Officers in Purchaser
As of the date hereof, Eric Kelly
beneficially owns all of Purchaser. It is anticipated that following the date
hereof, but prior to the Closing, additional persons and/or entities will invest
in equity of Purchaser. Following the Share Purchase, Mr. Kelly will serve as
the Chief Executive Officer of Purchaser. It is currently anticipated that
Purchaser will offer positions to Kurt L. Kalbfleisch and Jenny Yeh to serve as
the Chief Financial Officer of Purchaser and the General Counsel of Purchaser,
respectively. Following the Closing, Eric Kelly, Kurt L. Kalbfleisch, and Jenny
Yeh will no longer be employed by the Company. As of the date hereof, the
compensation arrangements of Mr. Kelly, Mr. Kalbfleisch and Ms. Yeh with
Purchaser have not been determined.
Effect on Unvested Equity Awards
If the Share Purchase is
completed, the Share Purchase would constitute a change in control event (as
such term is defined for purposes of the Companys equity-based awards). Under
the terms of the awards granted to our executive officers and non-employee
directors (including the provisions for accelerated vesting of the executive
officers equity awards in certain circumstances under the agreements described
below), the equity-based awards granted by the Company to each of our executive
officers and non-employee directors, to the extent such awards are outstanding
and unvested immediately prior to the Closing, will accelerate and be fully
vested upon the Closing. As used herein,
non-employee directors
refers
to members of the Board who are not employed by us or any of our subsidiaries.
In addition, stock options held by our executive officers would generally remain
exercisable for up to one year following the executives termination of
employment (subject to earlier termination upon the expiration of the maximum
term of the option or in connection with a change of control of the Company).
Common Shares and Equity Awards Held by Executive
Officers and Directors
The following table sets forth,
for each of our executive officers and non-employee directors, the number of the
Common Shares currently held by such individual and the number of the Common
Shares underlying such individuals currently outstanding vested and unvested
options and restricted stock unit awards (
RSUs
). To the knowledge of
the Company, the directors and officers who hold Common Shares intend to vote in
favor of the Transaction Resolution. The table also sets forth the values of
these shares, stock options and RSUs based on an assumed value of $ per Common
Share (calculated as the average closing price for a Common Share over the first
5 business days following the first public announcement of the transaction and,
in the case of options, subtracting the applicable per-share exercise price of
the option).
40
|
Common
|
Unvested
|
Vested
|
Unvested
|
Total
|
Name
|
Shares
|
RSUs
(1)
|
Options
|
Options(1)
|
Value($)
(2)
|
Eric L. Kelly
|
51,984
|
287,500
|
40,600
|
|
|
Kurt L. Kalbfleisch
|
22,125
|
155,465
|
4,000
|
|
|
Peter Tassiopoulos
|
4,000
|
|
8,000
|
|
|
Jenny Yeh
|
|
145,999
|
|
|
|
Cheemin Bo-Linn
|
|
16,000
|
|
|
|
Vivekanand Mahadevan
|
5,133
|
|
111
|
|
|
Duncan J. McEwan
|
|
8,421
|
|
|
|
|
(1)
|
As noted above, the then-outstanding and unvested awards
held by each executive officer and non-employee director will be fully
vested upon the Closing.
|
|
|
|
|
(2)
|
This column reflects the value of each individuals
Common Shares and equity-based awards reported in the table above (based
on an assumed value of $ for each Common Share as described above and, in
the case of options, subtracting the applicable per-share exercise price
of the option).
|
No new awards of or with respect
to the Common Shares have been granted to any executive officer or non-employee
director in contemplation of the Share Purchase, and the Company does not expect
that any such new awards will be granted prior to the Closing. Except as set out
below, no executive officer or director of the Company will receive any payment
(in such capacity) as a result of the Share Purchase, except with respect to
Common Shares, options and RSUs beneficially owned by such directors or
executive officers, which amounts will be paid on the same terms as all other
Shareholders or holders of options or RSUs. If the Share Purchase is completed,
the executive officers of the Company will not be entitled to receive any
additional compensation solely as a result of the change of control of the
Company.
Severance and Change in Control Agreements
The following discussion
describes the different contractual arrangements and other rights of our
executive officers that could be triggered in connection with a change of
control and, with respect to single trigger arrangements, in the event that a
termination of the executives employment were to occur in connection with a
change of control.
The amendments and agreements
described below that were effected in December 2017 were approved by the
Compensation Committee of the Board following a series of frequent Compensation
Committee meetings, Board meetings and informal discussions among Board members
beginning with the Boards August 4, 2017 meeting. At the August 4, 2017
meeting, Mr. Kelly presented data and compensation surveys provided by Equilar,
a compensation consultant he had retained on behalf of the Company to provide a
recommendation regarding the Companys executive compensation program,
particularly in light of the Companys ongoing focus on strategic alternatives,
and he presented his proposed compensation structure designed to maintain and
retain management and employees through a potential transaction and beyond. The
members of the Compensation Committee reviewed the Equilar reports and
management presentations and deliberated such proposals, both with Mr. Kelly and
among themselves thereafter. In late September 2017, the Compensation Committee
separately retained Pearl Meyer to act as a compensation consultant to the
Compensation Committee, to both review the Equilar data and Mr. Kellys proposal
and to conduct its own review and analysis of compensation practices of
similarly situated companies. In mid-November, after several meetings and
deliberations, the Compensation Committee recommended to the Board and the Board
approved the compensation arrangements described below, subject to the Boards
review and approval of final documents reflecting such terms. In approving such
arrangements, the Compensation Committee and the Board determined them to be
within the guidelines provided by Pearl Meyer. Such final documents were then
drafted, provided to and reviewed by the Board, and approved by the Board (with
Mr. Kelly and Mr. Tassiopoulos abstaining) at a meeting held on December 18,
2017.
The Company currently intends to
renegotiate portions of these arrangements to reduce the cash payable under them
in an effort to conserve cash of the Company following the Closing.
Eric L. Kelly
. The
Company has entered into a retention agreement with Mr. Kelly, which was amended
and restated in December 2017. Mr. Kellys agreement provides that if his
employment continues through a change in control of the Company (or if his
employment is terminated by the Company without cause or he resigns for good
reason (as such terms are defined in the agreement) within 60 days prior to the
change in control), he will be entitled to a lump sum payment equal to 150% of
the sum of his base salary at the time of the consummation of the change of
control or his termination date (whichever is higher) and his annual target
bonus. Mr. Kelly will also be entitled to accelerated vesting of his
then-outstanding and unvested stock options and other equity-based awards
granted by the Company, and he will be permitted to exercise vested stock
options for one year of the date of his termination, subject to earlier
termination upon the expiration of the maximum term of the option or upon a change of control. In addition, if his
employment is terminated by the Company without cause or he resigns for good
reason within the 60 day period before a change in control or any time after the
change in control, Mr. Kelly will be entitled to a lump sum payment of (i) an
amount equal to the estimated premiums he would be required to pay to continue
health insurance coverage under our insurance plans for himself and his eligible
dependents under COBRA for 18 months following the date of his termination, and
(ii) the estimated amount necessary for him to continue life, accident, medical
and dental insurance benefits for himself and his eligible dependents in amounts
substantially similar to those which he received immediately prior to the date
of his termination for a period of 18 months following his termination (reduced
by the amount of any payment for COBRA premiums as described in clause (i)
above). If any portion of any payment under Mr. Kellys retention agreement
would constitute an excess parachute payment within the meaning of Section
280G of the U.S. Internal Revenue Code, then that payment will be reduced to an
amount that is one dollar less than the threshold for triggering the tax imposed
by Section 4999 of the U.S. Internal Revenue Code if such reduction would result
in a greater benefit for Mr. Kelly on an after-tax basis. The consideration
payable to Mr. Kelly under the retention agreement is contingent upon him
providing us a general release of claims.
41
Kurt L. Kalbfleisch.
The
Company has entered into an employment agreement with Mr. Kalbfleisch, which was
amended and restated in December 2017. Mr. Kalbfleischs agreement provides that
if his employment continues through a change in control of the Company (or if
his employment is terminated by the Company without cause or he resigns for good
reason (as such terms are defined in the agreement) within 60 days prior to the
change in control), he will be entitled to a lump sum payment equal to 150% of
his base salary then in effect. Mr. Kalbfleisch will also be entitled to
accelerated vesting of his then-outstanding and unvested stock options and other
equity-based awards granted by the Company, and he will be permitted to exercise
vested stock options for one year of the date of his termination, subject to
earlier termination upon the expiration of the maximum term of the option or
upon a change of control. In addition, if his employment is terminated by the
Company without cause or he resigns for good reason within the 60-day period
before a change in control or any time after the change in control, Mr.
Kalbfleisch will be entitled to a lump sum payment of (i) an amount equal to the
estimated premiums he would be required to pay to continue health insurance
coverage under our insurance plans for himself and his eligible dependents under
COBRA for 12 months following the date of his termination, and (ii) the
estimated amount necessary for him to continue life, accident, medical and
dental insurance benefits for himself and his eligible dependents in amounts
substantially similar to those which he received immediately prior to the date
of his termination for a period of 12 months following his termination (reduced
by the amount of any payment for COBRA premiums as described in clause (i)
above). If any payment under Mr. Kalbfleischs employment agreement would
constitute an excess parachute payment within the meaning of Section 280G of
the U.S. Internal Revenue Code, then that payment will be reduced to an amount
that is one dollar less than the threshold for triggering the tax imposed by
Section 4999 of the U.S. Internal Revenue Code if such reduction would result in
a greater benefit for Mr. Kalbfleisch on an after-tax basis. The severance
benefits described above are contingent upon Mr. Kalbfleisch providing us with a
general release of all claims.
Peter
Tassiopoulos.
In December 2017, the Board approved certain compensation
arrangements for Mr. Tassiopoulos. Pursuant to these arrangements, if Mr.
Tassiopoulos employment continues through a change in control of the Company
(or if his employment is terminated by the Company without cause or he resigns
for good reason (as such terms are defined in the agreement) prior to the change
in control), he will be entitled to receive a lump sum payment of $360,000, and
his outstanding and unvested equity-based awards granted by the Company will
fully accelerate. In addition, if at any time his employment is terminated by
the Company without cause or he resigns for good reason, he will be entitled to
receive an amount equal to the estimated premiums he would be required to pay to
continue health insurance coverage under our insurance plans for himself and his
eligible dependents under COBRA for 12 months following the date of his
termination. The benefits described above are contingent upon Mr. Tassiopoulos
providing us with a general release of all claims and the entry into a
settlement and release agreement by Mr. Tassiopoulos with respect to his prior
bonus and severance arrangements with the Company.
Jenny C. Yeh.
We entered
into a retention agreement with Ms. Yeh in December 2017 that amended and
restated her prior severance agreement with the Company. Under her retention
agreement, if Ms. Yehs employment continues through a change in control of the
Company (or if her employment is terminated by the Company without cause or she
resigns for good reason (as such terms are defined in the agreement) prior to
the change in control), she will be entitled to receive a lump sum payment in an
amount equal to 12 months of her base salary, and her outstanding and unvested
equity-based awards granted by the Company will fully accelerate. In addition,
if at any time her employment is terminated by the Company without cause or she
resigns for good reason, she will be entitled to receive an amount equal to the
estimated premiums she would be required to pay to continue health insurance
coverage under our insurance plans for herself and her eligible dependents under
COBRA for 12 months following the date of her termination. The benefits
described above are contingent upon Ms. Yeh providing us with a general release
of all claims.
Stay Bonus Agreements
.
We entered into stay bonus agreements with each of our executive officers and
certain other key employees in December 2017. Under these agreements,
one-half of the executives stay bonus will be payable if the executive remains
employed with us through a change in control of the Company, and the other
one-half of the stay bonus will be payable if the executive remains employed
with us for 3 months after the change in control. If the executives employment
is terminated by the Company without cause or by the executive for good reason
(as such terms are defined in the agreement), any portion of the stay bonus that
has not previously been paid will be payable on the executives termination
(regardless of whether a change in control has occurred). The aggregate stay
bonus opportunity for each of the executive officers is as follows: Mr. Kelly -
$800,000; Mr. Kalbfleisch - $268,000; Mr. Tassiopoulos - $330,000; and Ms. Yeh -
$268,000. In each case, payment of the stay bonus is contingent upon the
executive providing us with a release of claims.
42
Sale Bonus Plan
. To
provide an additional incentive for our executive officers and certain other key
employees to achieve a sale of the Company, we adopted a sale bonus plan in 2017
that provides for participants to receive a specified percentage of the net
consideration from one or more qualifying transactions. The Share Purchase is
not expected to constitute a qualifying transaction and therefore no payments
under the Sale Bonus Plan will be required to be made in connection with the
Share Purchase. For purposes of the plan, a qualifying transaction is
generally a sale of a majority of the Companys shares or a sale of any of its
assets, and the net consideration is generally (1) the total proceeds to be
paid to the Company or its Shareholders in the qualifying transaction, less (2)
the Companys net debt at the time of the transaction, less (3) amounts payable
by the Company under the stay bonus agreements described above and the Companys
other expenses incurred in the transaction. Upon a qualifying transaction, a
bonus pool equal to 20% of the net consideration in the transaction is
established, with each participant being entitled to receive his or her
specified percentage of the bonus pool (subject to the terms and conditions of
the plan). The specified percentage of the bonus pool that is currently
allocated to each of the executive officers is as follows: Mr. Kelly - 30%; Mr.
Kalbfleisch - 20%; Mr. Tassiopoulos - 20%; and Ms. Yeh - 15%. A participant must
be employed with the Company at the time of the qualifying transaction (or have
been terminated by the Company without cause or resigned for good reason within
the period of 120 days prior to the qualifying transaction) to be eligible for a
bonus with respect to the qualifying transaction. If a participant resigns
(other than for good reason) or otherwise forfeits his or her interest under the
bonus plan, the forfeited interest may be regranted by the Board as one or more
new awards under the plan or, to the extent not re-granted before the time of a
qualifying transaction, would be reallocated to the other participants on a
pro-rata basis. Bonuses under the plan would generally be paid in connection
with the closing of the qualifying transaction, but may be subject to any
deferred payment arrangement (such as an escrow or earn-out provision) that
applies to the consideration paid in the transaction to the Company or its
Shareholders.
Shareholder Approval of the Share Purchase
We are organized under the OBCA.
Under Section 184(3) of the OBCA, any sale by us of all or substantially all
of our assets must be authorized by a special resolution passed by the
Shareholders. Given the book value and market value of, and revenues and profits
generated by the assets being sold pursuant to the Share Purchase, and after
taking into account the specific facts and circumstances of the Share Purchase,
the Share Purchase may be a sale of substantially all of our assets under the
OBCA and that a special resolution will be required. The Share Purchase also
constitutes a related party transaction for the purposes of MI 61-101, and, as
such, requires the affirmative vote of a simple majority of the votes cast by
the Minority Shareholders present in person or represented by proxy at the
Meeting. The text of the Transaction Resolution is attached as Annex B to this
Proxy Statement. The Transaction Resolution must be approved by the affirmative
vote of the holders of at least (i) 66 2/3% of the votes cast by Shareholders
represented in person or by proxy at the Special Meeting, and (ii) a simple
majority of the votes cast by the Minority Shareholders represented in person or
by proxy at the Special Meeting. The Share Purchase Agreement provides that if
either our Shareholders fail to approve the Transaction Resolution, the Company
or Purchaser may terminate the Share Purchase Agreement. The Share Purchase
Agreement also provides that obtaining such approval is a condition to each of
the Company and Purchaser being obligated to consummate the transactions
contemplated by the Share Purchase Agreement.
Regulatory Approval
Neither Purchaser nor we are
aware of any regulatory requirements or governmental approvals or actions that
may be required to consummate the Share Purchase, except for compliance with the
applicable regulations of the SEC, and applicable Canadian securities laws in
connection with this Proxy Statement.
Accounting Treatment of the Share Purchase
The Share Purchase is expected to
be accounted for as a sale of a business for accounting purposes. At the
Closing, any difference between the Purchase Price received by the Company, less
transaction expenses, and the book value of the net assets sold will be
recognized as a gain or loss for financial reporting purposes. In subsequent
reporting periods, Overland Storage for current and prior years, including any
gain on the sale of the assets, will be presented as a discontinued operation
for financial reporting purposes.
43
Expenses of the Share Purchase
The Company estimates that
expenses in the aggregate amount of approximately $ will be incurred by the
Company in connection with the Share Purchase, including legal, financial
advisory, accounting, proxy solicitation, filing fees and costs, the cost of
preparing, printing and mailing this Proxy Statement and fees in respect of the
Fairness Opinion. Except as otherwise expressly provided in the Share Purchase
Agreement, the parties to the Share Purchase Agreement agreed that all
out-of-pocket expenses of the parties relating to the Share Purchase Agreement
or the transactions contemplated thereby shall be paid by the party incurring
such expenses.
Certain Tax Consequences to the Share Purchase and the Asset
Transfer
The Share Purchase is not
expected to result in the Company recognizing any taxable income for U.S.
federal income tax purposes. The Share Purchase is not a Shareholder-level
action, and our U.S. and non-U.S. Shareholders, in their capacities as such, are
not expected to realize any gain or loss for U.S. federal income tax purposes
solely as a result of the Share Purchase.
The Share Purchase will be
treated for Canadian income tax purposes as a sale of the Companys assets in
exchange for cash. The Share Purchase is a taxable transaction for the Company
for Canadian income tax purposes, and the Company expects that it will realize a
capital loss for Canadian income tax purposes in connection with the Share
Purchase. The Share Purchase and the Asset Transfer are not Shareholder-level
actions, and our Shareholders, in their capacities as such, are not expected to
be subject to Canadian income tax solely as a result of the Share Purchase or
the Asset Transfer.
Dissent Rights
A Registered Shareholder of the
Company is entitled to dissent under Section 185 of the OBCA and to be paid the
fair value of such Shareholders Common Shares if such Shareholder duly objects
to the Transaction Resolution before it becomes effective. The following
summarizes the dissent rights provided for by the OBCA and is qualified in its
entirety by the provisions of Section 185 of the OBCA.
In addition to any other right
that a Shareholder who dissents (a
Dissenting Shareholder
) may have, a
Dissenting Shareholder who complies with the dissent procedures of Section 185
of the OBCA is entitled, when the Share Purchase becomes effective, to require
the Company to pay such Shareholder the fair value of such Shareholders Common
Shares, determined as of the close of business on the date before the
Transaction Resolution is adopted. A Shareholder wishing to exercise such right
must send to the Company, (240 Matheson Blvd. East, Toronto, Ontario, L4Z 1X1)
at or before the Special Meeting, a written objection (a
Notice of
Dissent
) to the Transaction Resolution with respect to all the Common
Shares held by such Shareholder. A vote in person against the Transaction
Resolution or the execution or exercise of a proxy to that effect does not
constitute a written objection for the purposes of Section 185 of the OBCA.
Within 10 days of the
Shareholders adopting the Transaction Resolution, the Company is required to
notify in writing each Dissenting Shareholder that the Transaction Resolution
has been adopted, unless the Dissenting Shareholder voted in favour of the
Transaction Resolution or has withdrawn such Shareholders Notice of Dissent. A
Dissenting Shareholder shall, within 20 days after such Shareholder receives
notice of the adoption of the Transaction Resolution or, if such Shareholder
does not receive such notice, within 20 days after such Shareholder learns that
the Transaction Resolution has been adopted, send to the Company a written
notice (the
Demand for Payment
) containing such Shareholders name and
address, the number of Common Shares in respect of which such Shareholder
dissents and a demand for payment of the fair value of the Common Shares held by
such Shareholder. Within 30 days of the sending of such Shareholders Demand for
Payment, the Dissenting Shareholder must send the certificates, if any,
representing the Common Shares in respect of which such Shareholder dissents to
the Company or its transfer agent. The Company or its transfer agent will
endorse thereon notice that the Shareholder is a Dissenting Shareholder and will
then return the share certificates to the Dissenting Shareholder. After sending
a Demand for Payment, a Dissenting Shareholder ceases to have any rights as a
Shareholder other than the right to be paid the fair value of the Common Shares
held by such Shareholder, except where (i) the Dissenting Shareholder withdraws
such Shareholders Demand for Payment before the Company makes an offer to the
Dissenting Shareholder pursuant to the OBCA; (ii) the Company fails to make an
offer as hereinafter described and the Dissenting Shareholder withdraws such
Shareholders Demand for Payment; or (iii) the Transaction Resolution is
revoked; in which case such Dissenting Shareholders rights as a Shareholder are
reinstated as of the date such Dissenting Shareholder sent the Demand for
Payment. Not later than 7 days after the later of the effective date of the
Share Purchase and the day the Company receives a Demand for Payment, the
Company is required to send to each Dissenting Shareholder who has sent a Demand
for Payment, a written offer to pay for the Common Shares of the Dissenting
Shareholder in an amount considered by the directors of the Company to be the
fair value thereof, accompanied by a statement showing how the fair value was determined or, if applicable, a
notification that the Company is unable lawfully to pay Dissenting Shareholders
for their Common Shares.
44
Every offer to pay for Common
Shares held by Dissenting Shareholders must be on the same terms and is to be
paid by the Company within 10 days of the acceptance, but an offer to pay lapses
if the Company has not received an acceptance thereof within 30 days of making
the offer to pay. If an offer to pay is not made by the Company or if a
Dissenting Shareholder does not accept an offer to pay, the Company may within
50 days after the effective date of the Share Purchase or within such further
period as the Ontario Superior Court of Justice (Commercial List) may allow,
apply to the Court to fix a fair value for the Common Shares of any Dissenting
Shareholder. If the Company fails to apply to the Ontario Superior Court of
Justice (Commercial List), a Dissenting Shareholder may apply to the Ontario
Superior Court of Justice (Commercial List) for the same purpose within a
further period of 20 days or within such further period as the Ontario Superior
Court of Justice (Commercial List) may allow.
Before making an application to
the Ontario Superior Court of Justice (Commercial List), or not later than 7
days after receiving notice of an application to the Ontario Superior Court of
Justice (Commercial List) brought by a Dissenting Shareholder, as the case may
be, the Company shall give to each Dissenting Shareholder who, at the date upon
which the notice is given, (i) has sent to the Company a Demand for Payment and
(ii) has not accepted the offer to pay made by the Company, notice of the date,
place and consequences of the application and of such Shareholders right to
appear and be heard in person or by counsel. A similar notice shall be given to
each Dissenting Shareholder who, after the date of such first-mentioned notice
and before the termination of the proceedings commenced by the application,
satisfies the conditions in (i) and (ii) above within 3 days after such
Shareholder satisfies such conditions. All Dissenting Shareholders who satisfy
the conditions in (i) and (ii) above shall be deemed to be joined in the
application on the later of the date upon which the application is brought and
the date upon which they satisfy the conditions, and such Dissenting
Shareholders are bound by the decision rendered by the Ontario Superior Court of
Justice (Commercial List) in the proceedings commenced by the application. Upon
an application to the Ontario Superior Court of Justice (Commercial List), the
Ontario Superior Court of Justice (Commercial List) may determine whether any
other person is a Dissenting Shareholder who should be joined as a party, and
the Ontario Superior Court of Justice (Commercial List) is to fix a fair value
for the Common Shares of all Dissenting Shareholders.
A Shareholder who dissents and
elects to receive the fair value of such Shareholders Common Shares and who
does not accept the offer to pay made by the Company, or if the offer to pay
lapses and the Company has not received an acceptance thereof, will be bound to
accept the amount determined by the Ontario Superior Court of Justice
(Commercial List) to be the fair value of the Common Shares. In addition, in
certain circumstances, Dissenting Shareholders may be responsible for certain of
the costs of the Ontario Superior Court of Justice (Commercial List) incurred by
the Ontario Superior Court of Justice (Commercial List) in the application.
The above is only a summary of
the dissenting shareholder provisions of the OBCA, which are technical and
complex. It is suggested that any Shareholders wishing to avail themselves of
such Shareholders rights under those provisions seek such Shareholders own
legal advice, as failure to comply strictly with the provisions of the OBCA may
prejudice such Shareholders right of dissent. Dissenting Shareholders should
also seek their own tax advice.
A Registered Shareholder may
dissent only with respect to all of the Common Shares held by such Shareholder
on behalf of any one beneficial owner and registered in the Shareholders name.
A Shareholder is not entitled to dissent with respect to any Common Shares if
the Shareholder votes any of such Common Shares in favor of the Transaction
Resolution.
Related Party Transaction Matters
Application of MI 61-101
Sphere 3D is a reporting issuer
(or its equivalent) in the provinces of British Columbia, Alberta and Ontario
and, accordingly, is subject to applicable securities laws of such
jurisdictions. The securities regulatory authorities in the provinces of Ontario
and Alberta (and in other Canadian jurisdictions) have adopted MI 61101 which
is intended to regulate certain transactions which raise the potential for
conflicts of interest, including issuer bids, insider bids, certain related
party transactions and certain business combination, and to ensure equality of
treatment among shareholders, and may require enhanced disclosure, approval by a
majority of shareholders excluding interested or related parties, independent
valuations and, in certain instances, approval and oversight of the transaction
by a special committee of independent directors. The requirements of MI 61101
generally apply to related party transactions (as such term is defined in MI
61101).
The Share Purchase would
constitute a related party transaction subject to MI 61101 for Sphere 3D
because Eric Kelly and Purchaser (of which Eric Kelly is a control person)
are related parties of the issuer and, pursuant to the Share Purchase, Sphere 3D
would sell, transfer or dispose of an asset to Purchaser. Moreover, it is
currently anticipated that Purchaser will offer to Kurt L. Kalbfleisch a
position at Purchaser to serve as the chief financial officer of Purchaser and
will offer to Jenny Yeh a position at Purchaser to serve as the general counsel
of Purchaser. As of the date hereof, the compensation arrangements of Mr. Kelly,
Mr. Kalbfleisch and Ms. Yeh with Purchaser have not been determined.
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Formal Valuation; Financial Hardship
Pursuant to MI 61101, a formal
valuation of the shares of Overland Storage (after taking into account the Asset
Transfer in respect of the Merged Business (as defined below)) would be required
since the Share Purchase is a related-party transaction subject MI 61101.
However, in connection with its recommendation in favor of the Share Purchase
and taking into account the Companys current cash flow and debt situation,
including its obligations to repay the Opus Credit Agreement and the FBC Note,
both of which are scheduled to mature on March 31, 2018, and the Fairness
Opinion and that obtaining a formal valuation would not have been reasonably
feasible in the circumstances, the Special Committee concluded that: (i) the
Company is in serious financial difficulty; (ii) the Share Purchase is designed
to improve the Company's financial position; and (iii) the terms of the Share
Purchase are reasonable for the Company in the circumstances. Accordingly, the
Company is relying on the financial hardship exemption from the requirement for
a formal valuation contained in MI 61101. See The Share PurchaseFairness
Opinion.
To the knowledge of the directors
and executive officers of the Company, after reasonably enquiry, (i) there has
been no prior valuation (as defined in MI 61101) prepared in respect of the
Company that relates to the subject matter of, or is otherwise relevant to, the
Share Purchase within the 24 months preceding the date hereof, and (ii) except
as otherwise disclosed in this Proxy Statement, there has been no
bona fide
prior offer relating to the subject matter of, or other relevant to, the
Share Purchase within the 24 months preceding the hereof.
Minority Approval
MI 61-101 requires that, in
addition to any other required security holder approval, a related-party
transaction be subject to minority approval (as defined in MI 61101) of
every class of affected securities (as defined in MI 61101) of the issuer, in
each case voting separately as a class. In relation to the Share Purchase, the
approval of the Transaction Resolution will require, for the purposes of MI
61101, the affirmative vote of a simple majority of the votes cast by all
Shareholders other than: (i) interested parties (as defined in MI 61101);
(ii) any related party (as defined in MI 61101) of an interested party,
unless the related party meets that description solely in its capacity as a
director or senior officer of one or more persons that are neither interested
party nor issuer insiders of the Company; and (iii) any person that is a
joint actor (as defined in MI 61-101) with any of the foregoing, voting
separately as a class (the
Minority
Shareholders
).
To the knowledge of the directors
and executive officers of Sphere 3D, after reasonable inquiry, the Common Shares
held by Eric Kelly and Kurt L. Kalbfleisch, who, collectively, beneficially own
or exercise control or direction over an aggregate of 74,110 Common Shares,
representing in the aggregate approximately % of the outstanding Common Shares,
will be excluded from the vote of the Minority Shareholders. See The Share
PurchaseParties to the Share Purchase.
46
RISK FACTORS RELATING TO THE PROPOSAL TO APPROVE THE
TRANSACTION RESOLUTION
You should carefully consider
the risk factors described below and those risk factors generally associated
with our business contained in our Annual Report on Form 20-F for the fiscal
year ended December 31, 2016, which is incorporated herein by reference and is
available on EDGAR at www.sec.gov and on SEDAR at www.sedar.com, and our
subsequent filings, along with other information provided to you in this Proxy
Statement, in deciding how to vote on the proposal to approve the sale of the
shares of Overland Storage to Purchaser pursuant to the terms of the Share
Purchase Agreement. The special risk considerations described below are not the
only ones facing Sphere 3D. Additional considerations not presently known to us
or that we currently believe are immaterial may also impair our business
operations. If any of the following special risk considerations actually occur,
our business, financial condition or results of operations could be materially
adversely affected, the market price of our Common Shares may decline, and you
may lose all or part of your investment.
The Purchase Price may be insufficient for the Company to
pay off its outstanding obligations.
The Purchase Price may be insufficient to pay off all of the
amounts owed by the Company under the Opus Credit Agreement, the FBC Note and
the MFV Note, and the other liabilities and transaction expenses. It is possible
that the net proceeds will not be sufficient to pay all of the above debts,
liabilities and expenses or that there will be enough cash or working capital in
the Company to fund its continuing operations. Accordingly, the Company may need
to raise additional capital through debt or equity financings before, at or
around the time of the Closing.
If we fail to complete the Share Purchase, we will be
required to seek financing to pay off our existing secured debt, satisfy our
other liabilities, pay our transaction expenses and continue our operations as a
going concern.
If we do not complete the Share
Purchase, we will continue to face challenges and uncertainties in our ability
to repay the outstanding obligations due under the Opus Credit Agreement and the
FBC Note, which are both scheduled to mature March 31, 2018. See The Share
PurchasePost-Closing Business and The Share Purchase AgreementUse of
Proceeds. As discussed above, it is possible that the net proceeds will not be
sufficient to pay all of the above debts, liabilities and expenses or that there
will be enough cash or working capital in the Company to fund its continuing
operations. Accordingly, the Company may need to raise additional capital
through debt or equity financings before, at or around the time of the Closing,
failing which the Company may not be able to continue to operate as a going
concern.
Further, if the Share Purchase is
not consummated, our directors, executive officers and other employees will have
expended extensive time and effort and will have experienced significant
distractions from their work during the pendency of the transaction and we will
have incurred significant third party transaction costs, in each case, without
any commensurate benefit, which may have a material and adverse effect on our
Common Share price and results of operations.
The Share Purchase may not be completed or may be delayed if
the conditions to the Closing are not satisfied or waived.
The Share Purchase may not be
completed or may be delayed because the conditions to the Closing set forth in
the Share Purchase Agreement, including approval of the transaction by our
Shareholders and the absence of a material adverse effect before the closing,
may not be satisfied or waived. If the Share Purchase is not completed, we may
have difficulty recouping the costs incurred in connection with negotiating the
Share Purchase, our relationships with our customers, suppliers and employees
may be damaged and our business may be harmed.
Purchaser may not obtain the Financing.
Purchasers obligation to
consummate and effect the transactions contemplated under the Share Purchase
Agreement, including the Share Purchase, is conditioned, among others, on the
Financing having been consummated. There is a risk that the Financing may not be
available and the Share Purchase will not be completed. See The Share Purchase
AgreementAgreements of the Parties with respect to the Financing.
If we fail to complete the Share Purchase, our business may
be harmed.
As a result of our announcement
of the Share Purchase, third parties may be unwilling to enter into material
agreements with respect to Overland Storage. New or existing customers and
business partners of Overland may prefer to enter into agreements with our
competitors who have not expressed an intention to sell their business because
customers and business partners may perceive that such new relationships are
likely to be more stable. If we fail to complete the Share Purchase, the failure
to maintain existing business relationships or enter into new ones could
adversely affect our business, results of operations and financial condition. If we fail to complete the
Share Purchase, we will also retain and continue to operate Overland Storage.
The resultant potential for loss or disaffection of employees or customers could
have a material, negative impact on the value of the shares of Overland
Storage.
47
Whether we complete the Share Purchase or not, we may not
have sufficient working capital and may need to seek additional
financing.
Whether we complete the Share
Purchase or not, we may not have sufficient working capital to continue to
operate the Company and as a result, may need to obtain financing to fund the
working capital of the Company. If we fail to obtain any such required
financing, we may incur difficulties in continuing to operate our business.
Our business may be harmed if the Share Purchase disrupts
the operations of our business and prevents us from realizing intended benefits.
The Share Purchase may disrupt
our business and prevent us from realizing intended benefits as a result of a
number of obstacles, such as:
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liquidity constraints;
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loss of key employees;
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failure to adjust or implement our business model;
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additional expenditures required to facilitate the Share
Purchase; and
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the diversion of managements attention from our
day-to-day business.
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Failure to complete the Share Purchase may cause the market
price for our Common Shares to decline.
If our Shareholders fail to
approve the Transaction Resolution, or if the Share Purchase is not completed
for any other reason, the market price of our Common Shares may decline due to
various potential consequences, including:
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we may not be able to sell the shares of Overland Storage
to another party on terms as favorable to us as the terms of the Share
Purchase Agreement;
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the failure to complete the Share Purchase may create
substantial doubt as to our ability to effectively implement our current
business strategies; and
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our costs related to the Share Purchase, such as legal
and accounting fees, must be paid even if the Share Purchase is not
completed.
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Following the completion of the Share Purchase, we may fail
to satisfy the continued listing standards of NASDAQ Capital Market and may
have to delist our Common Shares.
Even though we currently satisfy
the continued listing standards for The NASDAQ Capital Market, following the
completion of the Share Purchase, we may fail to satisfy the continued listing
standards of The NASDAQ Capital Market. In the event that we are unable to
satisfy the continued listing standards of the NASDAQ Capital Market, our Common
Shares may be delisted from that market. Any delisting of our Common Shares from
the NASDAQ Capital Market could adversely affect:
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our ability to attract new investors;
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decrease the liquidity of our outstanding Common Shares;
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reduce our flexibility to raise additional capital;
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reduce the price at which our Common Shares trade; and
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increase the transaction costs inherent in trading such
Common Shares with overall negative effects for our Shareholders.
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In addition, delisting of our
Common Shares could deter broker-dealers from making a market in or otherwise
seeking or generating interest in our Common Shares, and might deter certain
institutions and persons from investing in our securities at all. For these
reasons and others, delisting could adversely affect the price of our Common
Shares and our business, financial condition and results of operations.
We will continue to incur the expenses of complying with
public company reporting requirements following the Closing.
After the Share Purchase, we will
continue to be required to comply with the applicable reporting requirements of
the Exchange Act (as defined below) and applicable Canadian securities laws even
though compliance with such reporting requirements is economically burdensome.
If the Share Purchase is not completed, we may explore other
potential transactions, but the alternatives may be less favorable to us and
there can be no assurance that we will be able to complete an alternative
transaction.
If the Share Purchase is not
completed, we may explore other potential transactions, including a sale of the
shares of Overland Storage to another party on such terms as the Board may
approve. The terms of an alternative transaction may be less favorable to us
than the terms of the Share Purchase and there can be no assurance that we will
be able to reach agreement with or complete an alternative transaction with
another party.
By completing the Share Purchase, we will no longer be
engaged in the data protection and archive business.
Overland Storage accounted for
approximately 90% of our revenue from continuing operations for the fiscal year
ended December 31, 2017. By selling all of the shares of Overland Storage to
Purchaser, we will be exiting the data protection and archive business. Upon
completion of the Share Purchase, the Company will continue to sell its
converged and hyperconverged infrastructure products and professional services
under its HVE brand, as well as its proprietary virtualization and container
software. The Company will focus its efforts on growing its business within the
integrated systems marketplace and continue to offer its products through a
global network of distributors and resellers, as well as direct to customers
within certain key accounts.
49
The Share Purchase Agreement
The summary of the material
terms of the Share Purchase Agreement below and elsewhere in this Proxy
Statement is qualified in its entirety by reference to the Share Purchase
Agreement, a copy of which is attached as Annex A and which we incorporate by
reference into this document. We encourage you to carefully read the Share
Purchase Agreement in its entirety.
The Share Purchase Agreement
has been included to provide you with information regarding its terms. It is not
intended to provide any other factual information about Sphere 3D or Purchaser
or any of their respective subsidiaries or affiliates. Such information
regarding Sphere 3D can be found elsewhere in the proxy statement and in other
public filings Sphere 3D makes with the SEC.
The representations,
warranties and covenants contained in the Share Purchase Agreement were made
only for purposes of the Share Purchase Agreement as of specific dates and may
be subject to more recent developments. Such representations, warranties and
covenants were made solely for the benefit of the parties to the Share Purchase
Agreement, may be subject to limitations agreed upon by the contracting parties,
including being qualified by confidential disclosures made for the purposes of
allocating risk between parties to the Share Purchase Agreement instead of
establishing these matters as facts, and may apply standards of materiality in a
way that is different from what may be viewed as material by you or by other
investors. For the foregoing reasons, you should not rely on the
representations, warranties and covenants or any descriptions thereof as
characterizations of the actual state of facts or condition of Sphere 3D or any
of their respective subsidiaries or affiliates.
General
On February 20, 2018, Sphere 3D
and Purchaser entered into the Share Purchase Agreement, pursuant to which
Sphere 3D has agreed to sell, and Purchaser has agreed to purchase, all of the
outstanding shares of Overland Storage for $45.0 million in cash, subject to a
working capital adjustment described below. Prior to the Closing, the Company
shall cause Overland to transfer to the Company (or a designee thereof) the
Unified ConneXions business, the HVE ConneXions, and the SNAP Business.
Following the completion of the Share Purchase, Overland Storage will be owned
and operated by Purchaser, and Sphere 3D will have no interest in, and receive
no income from, Overland Storage.
Closing of the Share Purchase
Unless otherwise mutually agreed
by Sphere 3D and Purchaser, the Closing will take place no later than the first
business day following the satisfaction or, to the extent permissible, waiver of
the conditions set forth in the Share Purchase Agreement and described in the
section entitled The Share Purchase AgreementConditions to the Completion of
the Share Purchase beginning on page 58 of this Proxy Statement (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the satisfaction or, to the extent permissible, waiver of those
conditions).
As of the date of this Proxy
Statement, we expect to complete the Share Purchase in the second quarter of
calendar year 2018. However, completion of the Share Purchase is subject to the
satisfaction or waiver of the conditions to the completion of the Share
Purchase, which are described below, and it is possible that factors outside the
control of Sphere 3D or Purchaser could delay the completion of the Share
Purchase, or prevent it from being completed at all. There may be a substantial
amount of time between the Special Meeting and the completion of the Share
Purchase. We expect to complete the Share Purchase promptly following the
receipt of all required approvals and satisfaction or waiver of the conditions
to the completion of the Share Purchase.
Purchase Price
If the Transaction Resolution is
approved by the Shareholders and the other conditions to closing are satisfied
or waived, Purchaser will purchase all of the shares of Overland Storage from
the Company for a total purchase price of $45.0 million, subject to a working
capital adjustment described below.
Post-Closing Purchase Price Adjustment
Prior to Closing, Sphere 3D will
deliver a statement of Overland Storages estimated net working capital as of
the Closing Date. At Closing, the purchase price of $45.0 million will be
increased by the amount that the working capital estimate exceeds $4.0 million
or decreased by the amount that $4.0 million exceeds the working capital
estimate. The cash purchase price as so adjusted, will then be paid to Sphere 3D
by Purchaser.
50
Within 30 days after Closing
Date, Purchaser will prepare and deliver to Sphere 3D a statement of the final
working capital of Overland Storage as of the Closing. Sphere 3D will have 30
days to review the proposed final working capital statement. If Sphere 3D
objects to any of the items set forth on such statement, the parties will have
30 days to negotiate in good faith to resolve their disputes. If the parties
cannot resolve all of their disagreements, such disagreements will be resolved
by a nationally recognized independent account firm mutually and reasonably
acceptable to both parties.
If the closing working capital,
as finally determined, is greater than the estimated working capital amount
provided prior to the Closing, Purchaser will pay Sphere 3D the amount of such
excess. If the closing working capital, as finally determined, is less than the
estimated working capital amount provided prior to the Closing, Sphere 3D will
pay Purchaser the amount of such deficit (the
Shortfall Payment
).
However, if making the Shortfall Payment would result in Sphere 3Ds working
capital being less than $2.0 million, then the Shortfall Payment will be reduced
(but to no less than zero) such that Sphere 3Ds working capital equals $2.0
million immediately after the Shortfall Payment.
Use of Proceeds
If the Share Purchase is
completed, Sphere 3D will receive the Purchase Price, as adjusted by the working
capital adjustment. The net proceeds from the Share Purchase will be used to
repay Sphere 3Ds outstanding obligations under the Opus Credit Agreement and
its outstanding obligations under the FBC Note. Sphere 3D will also use the net
proceeds to pay transaction expenses associated with the Share Purchase. In
addition, following the Share Purchase, it is expected that other liabilities,
including the MFV Note, will be repaid. It is possible that the net proceeds
from the Share Purchase will not be sufficient to pay all of the above debts,
liabilities and expenses or that there will be enough cash or working capital in
the Company to fund its continuing operations. Accordingly, the Company may need
to raise additional capital through debt or equity financings before, at or
around the time of the Closing.
Representations and Warranties
Sphere 3Ds and Overland
Storages representations and warranties to Purchaser in the Share Purchase
Agreement relate to, among other things:
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the organization, good standing and qualification of
Overland Storage and its subsidiaries;
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the capital structure of Overland Storage and its
subsidiaries;
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the power and authority of Overland Storage to execute,
deliver and perform its obligations under the Share Purchase Agreement and
to consummate the transactions contemplated by the Share Purchase
Agreement;
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no breach of organizational documents of, laws applicable
to, or other agreements by, Overland Storage as a result of the execution
and delivery, or performance, of the Share Purchase Agreement;
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no consent, approval, order or authorization of, or
registration, declaration or failing with any governmental entity or
listing exchange is required to be obtained or made by Overland Storage as
a result of the execution and delivery, or performance, of the Share
Purchase Agreement;
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the financial statements of Overland Storage and its
subsidiaries;
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with respect to Overland Storage only, public filings
required to be filed pursuant to the Securities Exchange Act of 1934, as
amended (the
Exchange Act
) and Canadian securities laws and the
accuracy of the information contained in those documents;
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the absence of certain changes or events with respect to
Overland Storage and its subsidiaries;
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the payment of taxes, the filing of tax returns and other
tax matters related to Overland Storage and its subsidiaries;
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ownership of or rights with respect to certain
intellectual property of Overland Storage and its subsidiaries;
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confidentiality obligations with respect to certain
intellectual property of Overland Storage and its subsidiaries;
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compliance with certain intellectual property licenses
used by Overland Storage and its subsidiaries;
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sufficiency Overland Storage and its subsidiaries assets
to operate its business as currently conducted;
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compliance by Overland Storage and its subsidiaries with
certain laws, orders and permits;
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the absence of certain material actions, suits,
investigations or proceedings against Overland Storage or otherwise
related to the business of Overland Storage;
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brokers and finders fees and other expenses payable by
Overland Storage;
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employee benefits plans and other agreements, plans and
policies with or concerning employees of Overland Storage;
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compliance with the Employee Retirement Income Security
Act of 1974, as amended;
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labor matters related to Overland Storage;
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the ownership by Overland Storage and each of its
subsidiaries of its property and assets;
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compliance with certain environmental laws by Overland
Storage and its subsidiaries and other environmental matters;
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certain material contracts of Overland Storage;
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interested party transactions related to Overland Storage
and its subsidiaries;
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insurance matters of Overland Storage and its
subsidiaries; and
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acknowledgment that Overland Storage makes no additional
representations or warranties.
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Sphere 3Ds representations and
warranties to Purchaser in the Share Purchase Agreement relate to, among other
things:
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the organization, good standing and qualification of
Sphere 3D;
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the power and authority of Sphere 3D to execute, deliver
and perform its obligations under the Share Purchase Agreement and to
consummate the transactions contemplated by the Share Purchase Agreement;
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a fairness opinion with respect to the Share Purchase;
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the Special Committees recommendation with respect to
the Share Purchase Agreement and the transactions contemplated by the
Share Purchase Agreement;
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the Board of Directors recommendation with respect to
the Share Purchase Agreement and the transactions contemplated by the
Share Purchase Agreement;
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no breach of organizational documents of, laws applicable
to, or other agreements by, Sphere 3D as a result of the Share Purchase;
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no consent, approval, order or authorization of, or
registration, declaration or failing with any governmental entity or
listing exchange is required to be obtained or made by Sphere 3D as a
result of the execution and delivery, or performance, of the Share
Purchase Agreement;
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the absence of certain material actions, suits,
investigations or proceedings against Sphere 3D;
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the ownership by Sphere 3D of the shares of Overland
Storage;
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the accuracy of information included in this Proxy
Statement and accompanying management information circular; and
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acknowledgment that Sphere 3D makes no additional
representations or warranties.
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Purchasers representations and
warranties to the Company and to Overland Storage in the Share Purchase
Agreement relate to, among other things:
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the organization, good standing and qualification of
Purchaser;
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the power and authority to execute, deliver and perform
the Share Purchase Agreement and to consummate the transactions
contemplated by the Share Purchase Agreement;
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no breach of organizational documents of, laws applicable
to, or other agreements by, Purchaser as a result of the execution and
delivery, or performance, of the Share Purchase Agreement;
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no consent, approval, order or authorization of, or
registration, declaration or failing with any governmental entity or
listing exchange is required to be obtained or made by Purchaser as a
result of the executed and delivery, or performance, of the Share Purchase
Agreement;
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the absence of certain material actions, suits,
investigations or proceedings against Purchaser;
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the solvency of Purchaser;
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reliance on Purchasers own independent investigation,
analysis and evaluation of Overland Storage, including its capital stock,
in making the decision to enter into the Share Purchase Agreement and the
to consummate the transactions contemplated thereby; and
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the accuracy of information included in this Proxy
Statement.
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For purposes of the Share
Purchase Agreement and as used herein,
Contingency Termination Event
means the occurrence of each of the following: (i) the execution of legally
binding Commitments by the Financing Sources and Purchaser, which will be
delivered to Sphere 3D and will be in a form reasonably acceptable to Sphere 3D,
(ii) the execution and delivery by Purchaser to Sphere 3D of a written
irrevocable waiver in a form reasonably acceptable to Sphere 3D pursuant to
which Purchaser shall irrevocably waive the condition to closing requiring the
consummation of the Financing, and (iii) an executed certificate delivered to
Sphere 3D by Purchaser, making certain representations regarding the
Commitments.
For purposes of the Share
Purchase Agreement and as used herein, the
Commitments
means fully
executed commitment letters and related term sheets with debt and/or equity
financing sources, pursuant to which the financing sources therein (the
Financing Sources
) have committed, subject to the terms thereof, to
lend or provide equity financing to Purchaser in an amount sufficient to pay the
Purchase Price.
Definition of Material Adverse Effect
Many of the representations and
warranties in the Share Purchase Agreement are qualified by a material adverse
effect standard (that is, they will not be deemed to be untrue or incorrect
unless their failure to be true or correct has had or would reasonably be
expected to have a material adverse effect). For purposes of the Share Purchase
Agreement, a material adverse effect means any event, change, effect or
circumstance that (i) is or would reasonably be expected to be, either
individually or in the aggregate, materially adverse to the properties, assets,
business, operations, results of operations or financial condition of Overland
Storages general business as a whole or (ii) would prevent or materially alter
or delay Sphere 3Ds or Overland Storages ability to consummate the Share
Purchase; provided, however, that in determining whether a Material Adverse
Effect has occurred, the following are excluded for any event, change, effect,
circumstance or development relating to or arising in connection with:
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any action required to be taken or prohibited from being
taken pursuant to the terms and conditions of the Share Purchase Agreement
or at the request of Purchaser;
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changes affecting the industry in which Overland
Storages business operates generally or the economy of the United States
or any foreign market where Overland Storages business has sales
generally (provided in each case that such changes do not have a unique or
materially disproportionate impact on Overland Storages business);
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changes attributable to conditions (or changes after the
date hereof in such conditions) in the securities markets, credit markets,
currency markets or other financial markets in the United States or any
other country;
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hostilities, acts of war or terrorism or any material
escalation of any such hostilities, acts of war or terrorism
existing as of the date hereof or any acts of God or comparable
events;
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changes in generally accepted accounting principles
(
GAAP
) or legal requirements;
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the failure of Overland Storage to meet any financial or
other projections for any period ending after the date of the Share
Purchase Agreement; or
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changes or effects, to the extent attributable to the
announcement or pendency of the transactions contemplated by the Share
Purchase Agreement (including any disruption in, or termination or
modification of, supplier, distributor, partner or similar relationships
or loss of employees).
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Conduct of the Business Prior to Closing
Sphere 3D and Overland Storage
have agreed to certain covenants in the Share Purchase Agreement restricting the
conduct of Overland Storages business between the date of the Share Purchase
Agreement and the Closing Date. In general, except as otherwise expressly
contemplated by the Share Purchase Agreement or with the written consent of
Purchaser (not to be unreasonably withheld, conditioned or delayed), Overland
Storage will (and Sphere 3D will cause Overland Storage and its subsidiaries to)
(i) conduct its business in the usual, regular and ordinary course, in
substantially the same manner as theretofore conducted and in material
compliance with all the applicable legal requirements, (ii) pay its debts and
taxes when due, pay or perform its other material obligations when due, and
(iii) use commercially reasonable efforts to preserve intact the presented
business organization of Overland Storage.
In addition, Sphere 3D and
Overland Storage have agreed to certain restrictions between the date of the
Share Purchase Agreement and the Closing Date in which Overland Storage agrees
not to (and Sphere 3D will cause Overland Storage and its subsidiaries not to),
among other things and with certain exceptions:
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amend its certificate of incorporation or bylaws;
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adopt a plan of complete or partial liquidation or
dissolution;
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declare, set aside or pay any dividends on or make any
other distributions with respect of its capital stock or share capital;
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split, combine or reclassify any of its capital stock or
share capital, or issue or authorize the issuance of any other securities
in respect of, in lieu of or in substitution for shares of its capital
stock;
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purchase, redeem or otherwise acquire, directly or
indirectly, any shares its capital stock or share capital;
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issue, deliver, sell, authorize, pledge or otherwise
encumber any shares of its capital stock or share capital, or any
securities convertible into shares of its capital stock or share capital,
subscriptions, rights, warrants or options to acquire any shares of its
capital stock or share capital, or any securities convertible into shares
of its capital stock or share capital, or enter into other agreements or
commitments of any character obligating it to issue any such securities or
rights;
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acquire or agree to acquire, by merging or consolidating
with, or by purchasing any material equity or voting interest in or a
material portion of the assets of, or by any other manner, any business or
any Person (as defined below) or division thereof, or otherwise acquire or
agree to acquire any assets which are material to Overland Storages
business;
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sell, lease, exclusively license, encumber or otherwise
dispose of any properties or assets material to Overland Storages
business, except for licenses of products or services of Overland Storage
in the ordinary course of business;
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make any loans, advances or capital contributions to, or
investments in, any other Person, other than employee loans or advances
made in the ordinary course of business in accordance with written
policies of Overland Storage, which policies have been disclosed to
Purchaser prior to the execution and delivery of the Share Purchase
Agreement;
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make any material changes in its methods or principles of
accounting, except as required by GAAP;
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54
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except in certain permitted instances, hire or engage any
Person;
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incur any indebtedness, or guarantee any such
indebtedness of another Person, issue or sell any debt securities or
options, warrants, calls or other rights to acquire any debt securities of
Overland Storage; or
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take any action that would cause certain changes, events
or conditions with respect to Overland Storage and its subsidiaries.
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For purposes of the Share
Purchase Agreement and as used herein,
Person
means any individual,
corporation (including any non-profit corporation), general partnership, limited
partnership, limited liability partnership, joint venture, member, partner,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
governmental entity.
Board Obligation to Call a Shareholders Meeting
Sphere 3D has agreed under the
Share Purchase Agreement to cause a meeting of its Shareholders to be duly
called and held as soon as reasonably practicable following the clearance of
this Proxy Statement by the SEC to approve and adopt the Share Purchase
Agreement, including the Share Purchase and the other transactions contemplated
thereby.
Agreements of the Parties with Respect to the
Financing
In connection with the Share
Purchase and pursuant to the Share Purchase Agreement, Purchaser has agreed to
use best efforts to arrange the Financing.
Pursuant to the Share Purchase
Agreement, prior to the Closing, Sphere 3D has agreed to cause Overland Storage
and its subsidiaries to, and to use its commercially reasonable best efforts to,
provide all cooperation reasonably requested by Purchaser in connection with the
arrangement of the Financing provided that such requested cooperation does not
unreasonably interfere with the ongoing operations of Sphere 3D, Overland
Storage or any of their respective subsidiaries, including:
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participating in a reasonable number of meetings,
presentations, road shows, due diligence sessions and sessions with rating
agencies;
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using commercially reasonable best efforts to facilitate
the pledging of collateral;
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providing reasonable assistance with Purchasers
preparation of customary materials for bank information memoranda and
similar customary marketing documents required to be delivered in
connection with arranging the Financing; and
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furnishing Purchaser and its Financing Sources as
promptly as reasonably practicable with such financial and other pertinent
information regarding Overland Storage and its subsidiaries as may be
reasonably requested by Purchaser, including using commercially reasonable
efforts to, to the extent requested by Purchaser, provide customary and
reasonably required know your customer information at least 2 business
days prior to the Closing.
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In connection with the Share
Purchase and pursuant to the Share Purchase Agreement, prior to the Closing,
Purchaser must use its best efforts to arrange the Financing as promptly as
practicable (but no later than the Closing Date), including using best efforts
to:
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negotiate and finalize the Financing Documents;
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satisfy on a timely basis all conditions applicable to
Purchaser (or its affiliates) in such Financing Documents;
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comply with its and their obligations under any Financing
Documents and consummate the Financing no later than the Closing Date; and
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enforce its and their rights under the Financing
Documents.
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In the event that all conditions
to the Financing Documents have been satisfied in Purchasers good faith
judgment, Purchaser has agreed use its best efforts to cause the lenders and the
other persons providing such Financing to fund the Financing by the Closing
Date.
55
Sphere 3D is also required to
prepare and deliver to Purchaser promptly after the Closing certain unaudited
financial statements as of December 31, 2017 of Overland Storage (exclusive of
the Merged Business and SNAP Business).
Non-Solicitation Covenant
From and after the occurrence of
the Contingency Termination Event and until the earlier of the (i) termination
of the Share Purchase Agreement in accordance with its terms and (ii) the
Closing, Sphere 3D has agreed that neither Sphere 3D nor any of its subsidiaries
will, nor will Sphere 3D or any of its subsidiaries authorize or knowingly
permit any of the directors of Sphere 3D, the senior executive officers of
Sphere 3D, or any investment bankers, attorneys, accountants or other advisors
retained by Sphere 3D or its subsidiaries to, directly or indirectly:
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solicit, initiate or knowingly facilitate or encourage
the submission of any Acquisition Proposal (as defined below);
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enter into or participate in any discussions or
negotiations with, or furnish any non-public information or access
relating to Sphere 3D or any of its subsidiaries to, any person with
respect to an Acquisition Proposal or any inquiry or proposal that could
reasonably be expected to lead to an Acquisition Proposal; or
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enter into any agreement in principle, letter of intent,
merger agreement, acquisition agreement or other similar agreement
relating to an Acquisition Proposal.
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Such restrictions do not apply
prior to a Contingency Termination Event.
Subject to certain exceptions and
the occurrence of the Contingency Termination Event, the Share Purchase
Agreement provides that the Board of Directors may not fail to make, and may not
withdraw, withhold, qualify or modify or resolve to or publicly propose to
withdraw, withhold, qualify or modify in a manner adverse to Purchaser, the
recommendation of the Board of Directors with respect to the Share Purchase
Agreement or approve, endorse, or recommend, or publicly propose to approve,
endorse or recommend, an Acquisition Proposal.
Sphere 3D has also agreed that,
upon the Contingency Termination Event, it will immediately cease any
discussions or negotiations with any person with respect to an Acquisition
Proposal or any inquiry or proposal that could reasonably be expected to lead to
an Acquisition Proposal and terminate access to any third party or its
representatives to all information (including any confidential information),
properties, facilities and books and records with respect to Sphere 3D and its
subsidiaries.
Notwithstanding the restrictions
described above, and subject to certain limitations discussed below, if at any
time after the Contingency Termination Event, but prior to obtaining the
Shareholder Approval, Sphere 3D or any of its representatives receives an
unsolicited written, bona fide Acquisition Proposal from any third party that
did not result from any material breach of the Companys non-solicitation
obligations and the Board of Directors determines in good faith, after
consultation with its financial advisor and outside legal counsel, that such
Acquisition Proposal would reasonably be expected to result in a Superior
Proposal, then Sphere 3D or its representatives may, in accordance with the
terms of the Share Purchase Agreement:
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engage in negotiations or discussions with such third
party and its representatives related to such written Acquisition
Proposal; and
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furnish to such third party or its representatives
non-public information and access relating to Sphere 3D or any of its
subsidiaries pursuant to a confidentiality agreement; provided, that,
prior to or substantially concurrently with the furnishing of such
information, Sphere 3D will make available to Purchaser any material
non-public information relating to Sphere 3D or its subsidiaries that is
made available to such third party and that was not previously made
available to Purchaser.
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Following the occurrence of the
Contingency Termination Event, Sphere 3D has agreed to promptly, and in no event
later than 48 hours after receipt of any inquiry, proposal or offer that
constitutes or would reasonably be expected to constitute or lead to an
Acquisition Proposal, notify Purchaser orally and in writing of the receipt of
any Acquisition Proposal and identify the third party making, and the material
terms and conditions of, any such Acquisition Proposal. Sphere 3D has agreed to
keep Purchaser reasonably informed promptly, and in no event later than 48
hours, after any material developments, discussions or negotiations regarding
any Acquisition Proposal and will provide to Purchaser promptly, and in no event
later than 48 hours, after receipt thereof of copies of all proposed transaction
agreements or proposal letters or similar materials (and any attachments,
annexes, exhibits, schedules and other similar materials in connection
therewith) sent or provided to Sphere 3D or any of its subsidiaries that describe any material terms or
conditions of any Acquisition Proposal.
56
For purposes of the Share
Purchase Agreement,
Acquisition Proposal
means, other than the
transactions contemplated by the Share Purchase Agreement, any offer or proposal
of any arms length third party relating to (i) any acquisition or purchase,
direct or indirect, of assets (including securities of any subsidiary of Sphere
3D) equal to 50.1% or more of the consolidated assets of Sphere 3D and its
subsidiaries or of Overland Storage and its subsidiaries or to which 50.1% or
more of the consolidated revenues or earnings of Sphere 3D and its subsidiaries
or Overland Storage and its subsidiaries are attributable (any such assets, a
Material Segment
) or 50.1% or more of any class of equity or voting
securities of the Sphere 3D, Overland Storage or of any of their respective
subsidiaries whose assets, individually or in the aggregate, constitute a
Material Segment, (ii) any take-over bid, tender offer or exchange offer that,
if consummated, would result in such Third Party beneficially owning 50.1% or
more of any class of equity or voting securities of Sphere 3D, or (iii) a
merger, amalgamation, consolidation, arrangement, statutory share exchange,
business combination, sale of all or substantially all of the assets,
liquidation, dissolution or other similar extraordinary transaction involving
Sphere 3D, Overland Storage, or any of their respective subsidiaries whose
assets, individually or in the aggregate, constitute a Material Segment;
provided, however, that in no event shall any issuance of any securities of
Sphere 3D not to exceed 50.1% of the outstanding Common Shares for capital
raising purposes constitute an Acquisition Proposal.
For purposes of the Share
Purchase Agreement,
Superior Proposal
means a bona fide, written
Acquisition Proposal for at least a majority of the outstanding Common Shares or
at least a majority of the consolidated assets of Sphere 3D and its subsidiaries
or Overland Storage and its subsidiaries that the Board of Directors determines
in good faith, after consultation with its financial advisor and outside legal
counsel, and taking into account all relevant terms and conditions of such
Acquisition Proposal (including the timing and likelihood of consummation of
such proposal, taking into account all financial, legal, regulatory and other
aspects of the proposal), is more favorable to Shareholders (other than Eric
Kelly) from a financial point of view than the Share Purchase (taking into
account any written proposal by Purchaser to amend the terms of the Share
Purchase Agreement pursuant to certain terms thereof).
Changes in Board Recommendation
Except as provided in the
paragraphs below, under the terms of the Share Purchase Agreement, the Board of
Directors has agreed that following the Contingency Termination Event it will
not (i) fail to make or withdraw, withhold, qualify or modify, or resolve to or
publicly propose to withdraw, withhold, qualify or modify in a manner adverse to
Purchaser, the recommendation that the Shareholders approve and adopt the
Transaction Resolution or (ii) approve, endorse or recommend, or publicly
propose to approve, endorse or recommend, an Acquisition Proposal (the actions
described in clauses (i) and (ii) above being referred to as a
Change of
Recommendation
).
Notwithstanding the foregoing, at
any time after the Contingency Termination Event, but prior to the Shareholder
Approval, if the Board of Directors determines in good faith, after consultation
with outside legal counsel and in response to an unsolicited, written,
bona
fide
Acquisition Proposal that did not result from a material breach of the
obligations generally described above in the section entitled The Share
Purchase AgreementNon-Solicitation Covenant beginning on page 56 of this Proxy
Statement that (i) such Acquisition Proposal constitutes a Superior Proposal and
(ii) the failure to take such action would be reasonably likely to result in a
breach of its fiduciary duties under applicable law, then the Board of Directors
may:
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make a Change of Recommendation; or
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enter into a definitive agreement with respect to such
Superior Proposal and cause the Company to terminate the Share Purchase
Agreement concurrently with entering into such definitive agreement;
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provided that prior to taking any
such action:
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Sphere 3D promptly notifies Purchaser in writing, at
least 5 business days before taking such action, of the determination of
the Board of Directors that such Acquisition Proposal constitutes a
Superior Proposal and of its intention to take such action, attaching the
most current version of the proposed agreement under which such Superior
Proposal is proposed to be consummated and the identity of the third party
making such Superior Proposal; provided that each time any material
revision or material amendment to the terms of the Acquisition Proposal
determined to be a Superior Proposal is made, Sphere 3D must extend the 3
business day period for an additional 2 business days after notification
of such material revision or material amendment to Purchaser;
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during the applicable period described in the previous
bullet (the
Takeover Notice Period
), Sphere 3D considers in good
faith and discusses with Purchaser (if Purchaser desires to discuss) any
adjustments or modifications to the terms of the Share Purchase Agreement
proposed by Purchaser; and
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at the end of the Takeover Notice Period, the Board of
Directors makes the determination in good faith, after consultation with
its outside legal counsel and financial advisors, that the Acquisition
Proposal continues to be a Superior Proposal if any adjustments or
modifications to the terms of the Share Purchase Agreement proposed in
writing by Purchaser were to be given effect.
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Conditions to the Completion of the Share Purchase
The obligations of Sphere 3D,
Overland Storage and Purchaser to consummate and effect the transactions
contemplated under the Share Purchase Agreement, including the Share Purchase,
are subject to the satisfaction at or prior to the Closing Date of the following
conditions:
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the absence of any statute, rule, regulation, executive
order, decree, injunction or other order by a governmental entity of
competent jurisdiction which is in effect and has the effect of making any
of the transactions contemplated by the Share Purchase Agreement illegal;
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the Asset Transfer has been consummated; and
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the approval and adoption of the Transaction Resolution
by the affirmative vote of the holders of at least (i) 66 2/3% of the
votes cast by Shareholders represented in person or by proxy at the
Special Meeting, and (ii) a simple majority of the votes cast by the
Minority Shareholders represented in person or by proxy at the Special
Meeting.
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For purposes of the Share
Purchase Agreement and as used herein,
Asset Transfer
means the
transfer by Sphere 3D or one or more of its subsidiaries (including Overland
Storage), and the assumption by Sphere 3D or any subsidiary of Sphere 3D (other
than Overland Storage or any of its subsidiaries), of the Merged Business and
the SNAP Business.
For purposes of the Share
Purchase Agreement and as used herein,
Merged Business
means the
businesses of Unified ConneXions, Inc. (
UCX
) and HVE ConneXions, LLC
(
HVE
), each as conducted immediately prior to the merger of UCX and HVE
into Overland Storage, and as such businesses are currently conducted, including
the provision of information technology consulting services and hardware
solutions around cloud computing, data storage and server virtualization to
corporate, government, and educational institutions.
For purposes of the Share
Purchase Agreement and as used herein,
SNAP Business
means the SNAP
network attached storage business and its related intellectual property.
The obligations of Sphere 3D to
consummate and effect the transactions contemplated under the Share Purchase
Agreement, including the Share Purchase, are also subject to the satisfaction at
or prior to the Closing Date of each of the following conditions, any of which
may be waived, in writing, exclusively by Sphere 3D:
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(i) each of the representations and warranties of
Purchaser (other than certain representations with respect to corporate
existence, authorization and solvency) contained in the Share Purchase
Agreement that are qualified by a Purchaser Material Adverse Effect (as
defined below) are true and correct as so qualified at and as of the
Closing Date as if made at and as of such time (except to the extent any
such representation or warranty expressly related to an earlier date, in
which case as of such date), (ii) the representations and warranties of
Purchaser (other than certain representations with respect to corporate
existence, authorization and solvency) contained in the Share Purchase
Agreement that are not qualified by a Purchaser Material Adverse Effect
are true and correct at and as of the Closing Date as if made at and as of
such time (except to the extent any such representation or warranty
expressly relates to an earlier date, in which case as of such date)
except where the failure of such representations to be true and correct,
individually or in the aggregate, would not reasonably be expected to
result in a Purchaser Material Adverse Effect, and (iii) certain
representations with respect to corporate existence, authorization and
solvency of Purchaser are true and correct in all material respects at and
as of the Closing Date as if made at and as of such time (except to the
extent any such representation or warranty expressly relates to an earlier
date, in which case as of such date);
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the performance and compliance by Purchaser in all
material respects with all obligations and covenants required by the Share
Purchase Agreement to be performed or complied with by it on or prior to
the Closing Date; and
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absence of any claim, suit, action or proceeding pending
against Purchaser, Sphere 3D or Overland Storage by
any governmental entity resulting in the making of the
transactions contemplated under the Share Purchase Agreement illegal.
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58
For purposes of the Share
Purchase Agreement and as used herein,
Purchaser Material Adverse
Effect
means an action, event, effect or circumstance taken by, or caused
to be taken by, Purchaser that would prevent or delay the Closing or prevent or
delay or materially impair the ability of Purchaser to satisfy the conditions to
the obligations of the Company pursuant to the Share Purchase Agreement or to
timely consummate the Share Purchase, including making the cash payment as
consideration for the Share Purchase.
The obligations of Purchaser to
consummate and effect the transactions contemplated under the Share Purchase
Agreement, including the Share Purchase, are also subject to the satisfaction at
or prior to the Closing Date of each of the following conditions, any of which
may be waived, in writing, exclusively by Purchaser:
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(i) each of Sphere 3D and Overland Storages
representations and warranties (other than certain representations with
respect to corporate existence, capitalization, authorization of both
Overland Storage and Sphere 3D and title and ownership of Overland
Storages shares) contained in the Share Purchase Agreement that are
qualified by a Material Adverse Effect are true and correct as so
qualified at and as of the Closing Date as if made at and as of such time
(except to the extent any such representation or warranty expressly
related to an earlier date, in which case as of such date), (ii) the
representations and warranties of Sphere 3D and Overland Storage (other
than certain representations with respect to corporate existence,
capitalization, authorization of both Overland Storage and Sphere 3D and
title and ownership of Overland Storages shares) contained in the Share
Purchase Agreement that are not qualified by a Material Adverse Effect are
true and correct at and as of the Closing Date as if made at and as of
such time (except to the extent any such representation or warranty
expressly relates to an earlier date, in which case as of such date),
disregarding for these purposes any references to material or similar
materiality qualifiers therein, except where the failure of such
representations and warranties to be true and correct, individually or in
the aggregate, would not have or reasonably be expected to result in a
Material Adverse Effect on Overland Storage, (iii) certain representations
and warranties of Sphere 3D and Overland Storage with respect to corporate
existence and power and corporate authorization of Sphere 3D and Overland
Storage are true and correct in all material respects at and as of the
Closing Date as if made at and as of such time (except to the extent any
such representation or warranty expressly related to an earlier date, in
which case as of such date) and (iv) the representations and warranties of
Sphere 3D and Overland Storage with respect to the capitalization of
Overland Storage and title and ownership of Overland Storages shares
shall be true and correct at and as of the Closing Date as if made at and
as of such time (except to the extent any such representation or warranty
expressly related to an earlier date, in which case as of such date)
except for inaccuracies that individually or in the aggregate are de
minimis;
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the performance and compliance by Sphere 3D and Overland
Storage in all material respects with all obligations and covenants
required by the Share Purchase Agreement to be performed or complied with
by them at or prior to the Closing Date, and Purchasers receipt of a
certificate of such effect signed on behalf of Overland Storage by an
authorized officer of Sphere 3D;
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absence of any claim, suit, action or proceeding pending
against Purchaser, Sphere 3D or Overland Storage by any governmental
entity resulting in the making of the transactions contemplated under the
Share Purchase Agreement illegal;
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the absence of a Material Adverse Effect;
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the delivery by Sphere 3D to Purchaser of certificates
representing all of the shares of Overland Storage (if and to the extent
certificated), accompanied by share transfer instruments duly executed;
and
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the Financing has been consummated.
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Termination of the Share Purchase Agreement
Mutual Termination Right
The Share Purchase Agreement may
be terminated and abandoned at any time prior to the Closing Date by the mutual
written agreement of Sphere 3D and Purchaser.
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Termination Rights Exercisable by Either Sphere 3D or
Purchaser
The Share Purchase Agreement may
also be terminated by either Sphere 3D or Purchaser if:
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the Share Purchase has not occurred on or before the End
Date; provided, however, that this termination right will not be available
to any party whose action or failure to act has been the principal cause
of or resulted in the failure of the Share Purchase to occur on or before
the End Date and such action or failure to act constitutes a breach of the
Share Purchase Agreement (the
End Date Termination Right
); or
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a governmental entity of competent jurisdiction has
issued a final and nonappealable order, decree or ruling or taken any
other action (including the failure to have taken an action), in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Share Purchase.
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Sphere 3D Termination Rights
Sphere 3D may also terminate the
Share Purchase Agreement:
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if Purchaser has breached or failed to perform any of its representations, warranties, covenants or
other agreements under the Share Purchase Agreement, which breach or
failure would result in a failure of certain of the conditions to the
consummation of the Share Purchase and such breach cannot be cured by the
End Date; provided, that, the other party shall have given the breaching
party 30-days written notice prior to such termination stating such other
partys intent to terminate the Share Purchase Agreement and the basis
therefor; provided that this termination right shall not be available to
Sphere 3D if Sphere 3D is then in breach of any representation, warranty,
covenant or other agreements that would give rise to a failure of certain
of the conditions to the consummation of the Share Purchase set forth in
the Share Purchase Agreement;
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for any reason or for no reason prior to the Contingency
Termination Event (the
Sphere 3D Withdrawal
Right
);
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after the occurrence of the Contingency Event
Termination, but prior to the Shareholder Approval, if, substantially
concurrently with such termination, Sphere 3D (i) enters into an
alternative acquisition agreement that constitutes a Superior Proposal,
and (ii) pays to Purchaser a termination fee (the
Superior
Proposal
Termination Right
); or
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if, after the occurrence of a Contingency Termination
Event, (i) Sphere 3D and Overland Storages conditions to consummate and
effect the Share Purchase and the other transactions contemplated by the
Share Purchase Agreement have been satisfied or waived, (ii) Sphere 3D has
confirmed by written notice to Purchaser that all of Purchasers
conditions to consummate and effect the Share Purchase and the other
transactions contemplated by the Share Purchase Agreement have been
satisfied or waived and (iii) the Share Purchase and the other
transactions contemplated by the Share Purchase Agreement have not been
consummated within 2 business days after the delivery of such notice.
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Purchaser Termination Rights
Purchaser may also terminate the
Share Purchase Agreement:
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if Sphere 3D or Overland has breached or failed to
perform respect any of its representations, warranties,
covenants or other agreements under the Share Purchase Agreement, which
breach or failure would result in a failure of certain of the conditions
to the consummation of the Share Purchase and such breach cannot be cured
by the End Date; provided, that, the other party shall have given the
breaching party 30-days written notice prior to such termination stating
such other partys intent to terminate the Share Purchase Agreement and
the basis therefor; provided that this termination right shall not be
available to Purchaser if Purchaser is then in breach of any
representation, warranty, covenant or other agreements that would give
rise to a failure of certain of the conditions to the consummation of the
Share Purchase set forth in the Share Purchase Agreement ( the
Sphere
3D Breach Termination Right
); or
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after the occurrence of the Contingency Termination
Event, if the Board of Directors has affected a Change of Recommendation
(the
Change of Recommendation Termination Right
).
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Termination Fee Payable by Sphere 3D
Sphere 3D has agreed that, after
the occurrence of the Contingency Termination Event, it will pay to Purchaser a
termination fee (the
Termination Fee
) equal to the
lesser of (i) $1.0 million and (ii) the aggregate of the amount of Purchasers
reasonable and documented out-of-pocket fees and expenses relating to the
evaluation, negotiation and execution of the Share Purchase Agreement and the
amount that Purchaser is obligated to pay or reimburse to the Financing Sources
pursuant to the Commitments in the following circumstances:
60
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if the Share Purchase Agreement is terminated by
Purchaser pursuant to the Change of Recommendation Termination Right;
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if the Share Purchase Agreement is terminated by Sphere
3D pursuant to the Superior Proposal Termination Right; or
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if (i) after the date of the Share Purchase Agreement,
any qualifying transaction is publicly made or announced and not
withdrawn on or prior to the date that is 2 business days before the date
of the Special Meeting, (ii) thereafter (x) the Share Purchase Agreement
is terminated by Sphere 3D or Purchaser pursuant to the End Date
Termination Right or (y) the Share Purchase Agreement is terminated by
Purchaser pursuant to the Sphere 3D Breach Termination Right, and (iii)
concurrently with or within 6 months of the termination of the Share
Purchase Agreement Sphere 3D enters into a definitive agreement for such
qualifying transaction that is thereafter consummated.
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In no event will Sphere 3D be
obligated to pay the Termination Fee on more than one occasion or at any time
prior to a Contingency Termination Event. Further, should Sphere 3D be obligated
to pay the Expense Reimbursement discussed below, in no event will it ever have
to pay the Termination Fee.
Expense Reimbursement
In the event the Share Purchase
Agreement is terminated by Sphere 3D pursuant to the Sphere 3D Withdrawal Right
(and not pursuant to any other termination rights set forth in the Share
Purchase Agreement), Sphere 3D has agreed to reimburse Purchaser for its
reasonable and documented out-of-pocket expenses incurred in connection with the
negotiation, execution and performance of the Share Purchase Agreement and the
transactions contemplated thereby (the
Expense Reimbursement
). However,
the amount of the Expense Reimbursement will not exceed $350,000 plus any such
expenses owed to Cooley LLP, legal counsel to Purchaser. In no event will Sphere
3D be obligated to pay the Expense Reimbursement on more than one occasion.
Further, should Sphere 3D be obligated to pay the Termination Fee, in no event
will it ever have to pay the Expense Reimbursement.
Indemnification
Subject to certain limitations,
Sphere 3D has agreed to indemnify Purchaser and its affiliates (including, after
the Closing, Overland Storage and its subsidiaries) and each of their respective
officers, directors, shareholders, managers, members, employees, agents,
successors and assigns (each a
Purchaser Indemnified Party
and
collectively, the
Purchaser Indemnified Parties
) for any Losses (as
defined below) suffered or incurred by them that result from or arise out
of:
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any breach or inaccuracy of any representation or
warranty made by Sphere 3D or Overland Storage in the Share Purchase
Agreement (a
Representation and Warranty Breach
); provided,
however, for purposes of determining the amount of any indemnifiable
Losses with respect to a Representation and Warranty Breach, such
representation or warranty will be read without regard to any materiality
or knowledge qualifier contained therein, but that such representation or
warranty shall be read with regard to materiality and knowledge qualifiers
in determining whether there has been a breach or inaccuracy of any such
representation or warranty; and
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any breach of non-fulfillment of any covenant, agreement
or obligation of Overland Storage (at or prior to the Closing) or Sphere
3D under the Share Purchase Agreement (a
Covenant Breach
).
|
The representations and
warranties contained or made pursuant to the Share Purchase Agreement terminate
12 months following the Closing Date. The covenants, agreements and obligations
of the parties to be performed after the Closing survive the Closing until such
covenants are performed.
Sphere 3Ds maximum aggregate
obligation to indemnify the Purchaser Indemnified Parties for indemnifiable
Losses resulting from or arising out of Representation and Warranty Breaches
will not exceed $4.5 million (the
General Indemnity Cap
) in the
aggregate. However, Sphere 3D will not be liable to the Purchaser Indemnified
Parties for any Losses resulting from or arising out of Representation and Warranty Breaches
until the aggregate amount of all Losses in respect of the such indemnification
claims exceed $25,000 (the
Threshold Amount
). Once the Threshold Amount
is met, Sphere 3D will be liable for all indemnifiable Losses from the first
dollar of such Losses.
61
However, the General Indemnity
Cap will not apply with respect to any claim arising from (i) a breach or
inaccuracy of any Fundamental Representation (as defined below), (ii) fraud or
(iii) a Covenant Breach. Instead, such indemnifiable losses resulting from or
arising out of such claims will be capped at the Purchase Price rather than the
General Indemnity Cap. Further, the Threshold Amount limitation will not apply
to Covenant Breaches and, as such, Sphere 3D may be liable to the Purchaser
Indemnified Parties for any Losses resulting from or arising out of a Covenant
Breach from the first dollar up to and including the Purchase Price.
For purposes of the Agreement
Losses
means any and all damages, losses, charges, liabilities,
proceedings, diminution in value, payments, judgments, settlements, assessments,
deficiencies, taxes, interest, penalties, and reasonable and documented
out-of-pocket costs and expenses (including reasonable and documented
out-of-pocket attorneys fees); provided, however, that Losses do not include
any indirect, special, consequential or punitive damages, lost profits, or
damages or other Losses based on any multiple of EBITDA (earnings before
interest, taxes, depreciation and amortization) or based on any other financial
metric (whether trailing, forward or otherwise), except to the extent actually
awarded to a third party in a third party claim.
As used herein,
Fundamental
Representation
includes those representations and warranties of Sphere 3D
and Overland Storage regarding organization, standing and power, organizational
documents, subsidiaries, capital structure, authority, due execution,
non-contravention and consents, as set forth in Sections 2.1, 2.2, 2.3, 3.1, 3.2
and 3.5 of the Share Purchase Agreement.
Specific Performance; Exclusive Remedy
The Share Purchase Agreement
provides that the parties may seek to compel the other party to specifically
perform its obligations under Share Purchase Agreement in addition to any other
remedy to which they are entitled at law or in equity.
The Share Purchase Agreement also
provides that upon any termination of the Share Purchase Agreement under which
circumstances the Expense Reimbursement is payable or the Termination Fee is
payable and such Expense Reimbursement or Termination Fee is paid in full,
Purchaser will be precluded from any other remedy against Sphere 3D or Overland
Storage, and Purchaser may not seek to obtain any other recovery or damages of
any kind in connection with the Share Purchase Agreement or transactions
contemplated thereby.
Further, the Share Purchase
Agreement provides that, should the Closing occur, the indemnification
obligations described above will be the sole and exclusive remedy thereafter of
the Purchaser Indemnification Parties with respect to any and all claims
relating the Share Purchase Agreement and the transaction contemplated
therein.
Fees and Expenses
Except with respect to the
Expense Reimbursement and otherwise set forth in the Share Purchase Agreement,
all fees and expenses incurred in connection with the Share Purchase Agreement
and the transactions contemplated by the Share Purchase Agreement generally will
be paid by the party incurring such expenses whether or not the Share Purchase
is consummated.
Sphere 3D estimates that expenses
in the aggregate amount of approximately $ will be incurred by Sphere 3D in
connection with the Share Purchase, including legal, financial advisory,
accounting, proxy solicitation, filing fees and costs, the cost of preparing,
printing and mailing this Proxy Statement and fees in respect of the Fairness
Opinion. Except as otherwise expressly provided in the Share Purchase Agreement,
the parties to the Share Purchase Agreement agreed that all out-of-pocket
expenses of the parties relating to the Share Purchase Agreement or the
transactions contemplated thereby will be paid by the party incurring such
expenses.
62
Amendments, Waivers
Subject to applicable legal
requirements, the parties may amend or waive any provision of the Share Purchase
Agreement if such amendment or waiver is in writing and signed by both Purchaser
and Sphere 3D.
Governing Law and Venue, Waiver of Jury Trial
The parties agreed that the Share
Purchase Agreement is governed by California law, regardless of the laws that
might otherwise govern under applicable principles of conflict of laws of the
State of California. Each party agreed to irrevocably submit to the exclusive jurisdiction of the Superior Courts of
the State of California, Santa Clara County and the United States District Court
in Santa Clara, California, for the purposes of any suit, action or other
proceeding arising out of the Share Purchase Agreement, the other agreements
contemplated by the Share Purchase Agreement or the transactions contemplated
thereby. Each of party agreed to commence any action, suit or proceeding
relating to the Share Purchase Agreement in the United States District Court in
Santa Clara, California or if such suit, action or other proceeding may not be
brought in such court for jurisdictional reasons, in the Superior Court of the
State of California, Santa Clara County. Each party further irrevocably waived
any right such party may have to a trial by jury with respect to any action,
suit or proceeding arising out of or relating to the Share Purchase Agreement or
the transactions contemplated by the Share Purchase Agreement.
63
THE NAME CHANGE
Recommendation of the Board of Directors
The Board of Directors believes
that it is in the best interests of the Company to change its name to HVE
ConneXions, Inc. Following the completion of the Share Purchase, the Company
will continue to sell its converged and hyperconverged infrastructure products
and professional services under its HVE brand. The Company will have a dedicated
focus on the Converged and Hyperconverged segment of the integrated systems
market. Consequently, the Board of Directors believes HVE ConneXions, Inc. is
a more descriptive and fitting name for the Company going forward.
The Board of Directors
unanimously recommends that you vote
FOR
the passing, with or without
variation, of the Name Change Resolution, as provided below.
BE IT RESOLVED
as a special resolution that:
1.
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the Company is hereby authorized to amend its articles to
change the Company's name to HVE ConneXions, Inc.;
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2.
|
the articles of the Company be amended to reflect the
foregoing;
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3.
|
any officer or director of the Company is hereby
authorized and directed from time to time for and on behalf of the Company
to execute all such other documents and to do all such other acts as in
such officer's or director's discretion may be necessary or desirable to
give effect to the foregoing including, without limitation, the delivery
of articles of amendment in the prescribed form to the Director appointed
under the
Business Corporations Act
(Ontario); and
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4.
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notwithstanding the foregoing, the directors of the
Company may, without further approval of the shareholders of the Company,
revoke this special resolution at any time before the certificate of
amendment to be issued by such Director upon receipt of such articles of
amendment becomes effective.
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64
OTHER INFORMATION
Previous Purchases and Sales
On August 11, 2017, the Company
entered into a securities purchase agreement with certain investors pursuant to
which the Company issued (i) 600,000 Common Shares, of which 395,000 Common
Shares were issued to related parties, and (ii) warrants for the purchase of up
to 600,000 Common Shares, of which 395,000 warrants were issued to related
parties, in a private placement in exchange for a cash payment of $3.0 million.
The purchase price was $5.00 per Common Share and warrant to purchase one Common
Share, and the exercise price of the warrants is $5.25 per warrant share. The
warrants are subject to certain anti-dilution adjustments through December 2017.
On July 11, 2017, the Company
entered into amended and restated warrant agreements with certain holders of
warrants previously issued in March 2016 (the
Amended March 2016
Warrant
) and between December 2016 and March 2017 (the Amended March 2017
Warrants and together with the Amended March 2016 Warrant, the
Amended and
Restated Warrants
). Pursuant to the amended and restated warrant
agreements, the Company issued an aggregate of 1,617,917 Common Shares, of which
1,315,385 Common Shares were issued to related parties, in exchange for the
cancellation of such warrants. Immediately after the exchange, the amended and
restated warrant agreements became null and void.
On March 24, 2017, the Company
entered into a securities purchase agreement with certain investors party
thereto, pursuant to which the Company issued to the investors, in the
aggregate, 818,180 of the Companys Common Shares for gross proceeds of $4.5
million. The securities purchase agreement also provided for the concurrent
private placement of warrants exercisable to purchase up to 818,180 Common
Shares. Each warrant had an exercise price of $7.50 per warrant share. The
warrants are exercisable for 5 years from the date of the effective date of the
offering. If at any time while the warrants are outstanding, we sell or grant
options to purchase, reprice or otherwise issue any Common Shares or securities
convertible into Common Shares at a price less than $7.50, then the exercise
price for the warrants will be reduced to such price, provided that the exercise
price will not be reduced to below $0.10, and the number of Common Shares
issuable under the warrants will be increased such that, after taking into
account the decrease in the exercise price, the aggregate exercise price under
the warrants will remain the same. MFV, a related party, participated in the
offering by acquiring 181,818 Common Shares and warrants to purchase 181,818
shares. In August 2017, the Company issued additional Common Shares, which
triggered a price adjustment for the March 2017 warrants from $7.50 to $5.00 and
the Company issued, in the aggregate, additional warrants exercisable to
purchase up to 433,638 Common Shares, of which MFV received 90,909 warrants
exercisable to purchase Common Shares.
Between December 30, 2016 and
March 16, 2017, the Company completed a private placement and issued a total of
725,599 Units at a purchase price of $7.50 per Unit. Each Unit consisted of
one Common Share and one warrant from each of two series of warrants. The
Company received gross proceeds of $5.4 million in connection with the sale of
the Units. The first series of warrants is exercisable to purchase 725,599
Common Shares in the aggregate, and the second series of warrants is exercisable
for 725,599 Common Shares in the aggregate.
Market Price of Common Shares
On December 28, 2012, our Common
Shares commenced trading on the TSX Venture Exchange under the symbol ANY. On
July 8, 2014, our Common Shares commenced trading on the NASDAQ Global Market
under the symbol ANY. On December 10, 2014, we voluntarily delisted our Common
Shares from the TSXV. On February 1, 2017, our Common Shares commenced trading
on the NASDAQ Capital Market in connection with our application to transfer our
Common Shares from the NASDAQ Global Market. The closing price per Common Share
on February 20, 2018, the last trading day on the NASDAQ Capital Market before
the public announcement of the Share Purchase was $2.34. The prices indicated in
the tables below reflect adjustments for the consolidation of our Common Shares
(also known as reverse stock split) on a 1-for-25 basis as at July 11, 2017.
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NASDAQ
(USD$)(1)
|
|
Annual Highs and Lows
|
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High
|
|
|
Low
|
|
Fiscal 2016
|
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49.25
|
|
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5.00
|
|
Fiscal 2017
|
|
9.25
|
|
|
1.91
|
|
65
|
|
NASDAQ
(USD$)
|
|
Quarterly Highs and Lows for Fiscal 2016 and 2017
|
|
High
|
|
|
Low
|
|
First Quarter Fiscal 2016
|
|
49.25
|
|
|
28.75
|
|
Second Quarter Fiscal 2016
|
|
33.50
|
|
|
17.70
|
|
Third Quarter Fiscal 2016
|
|
23.00
|
|
|
11.28
|
|
Fourth Quarter Fiscal 2016
|
|
21.00
|
|
|
5.00
|
|
First Quarter Fiscal 2017
|
|
9.26
|
|
|
5.34
|
|
Second Quarter Fiscal 2017
|
|
6.41
|
|
|
2.80
|
|
Third Quarter Fiscal 2017
|
|
5.30
|
|
|
2.21
|
|
Fourth Quarter Fiscal 2017
|
|
3.05
|
|
|
1.91
|
|
|
|
NASDAQ
(USD$)
|
|
|
Trading
|
|
Monthly Highs and Lows
|
|
High
|
|
|
Low
|
|
|
Volume
|
|
February 2017
|
|
8.73
|
|
|
7.05
|
|
|
15,182,100
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March 2017
|
|
7.80
|
|
|
5.34
|
|
|
46,783,500
|
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April 2017
|
|
5.43
|
|
|
4.50
|
|
|
40,113,400
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May 2017
|
|
5.72
|
|
|
3.09
|
|
|
59,956,900
|
|
June 2017
|
|
6.41
|
|
|
2.80
|
|
|
209,395,500
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July 2017
|
|
5.10
|
|
|
2.97
|
|
|
36,001,500
|
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August 2017
|
|
5.30
|
|
|
3.55
|
|
|
2,593,600
|
|
September 2017
|
|
4.56
|
|
|
2.21
|
|
|
3,047,200
|
|
October 2017
|
|
2.89
|
|
|
2.23
|
|
|
15,974,100
|
|
November 2017
|
|
3.05
|
|
|
2.48
|
|
|
6,411,500
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December 2017
|
|
2.48
|
|
|
1.91
|
|
|
6,315,000
|
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January 2018
|
|
2.95
|
|
|
2.26
|
|
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4,564,701
|
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February 2018 (through
February
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, 2018
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)
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Dividend Policy
The Company has not paid a
dividend with respect to its shares during the 2 years preceding the date of
this Proxy Statement. The Company does not intend to declare a dividend nor does
it intend to alter its dividend policy. There are no restrictions on the
Companys ability to pay dividends other than those restrictions set forth under
the OBCA and as provided in the Opus Credit Agreement and the FBC Note, both of
which prohibit the payment of dividends at any time during which the loans
thereunder remain outstanding.
Security Ownership of Certain Beneficial Owners and
Management
The following table provides
certain information regarding beneficial ownership of our Common Shares by each
Shareholder known by us to be the beneficial owner of more than 5% of our
outstanding Common Shares as of , 2018, except as otherwise noted in the
footnotes to the table.
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Number of
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Type of Ownership
|
|
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Shares
|
|
|
Beneficial
|
|
Name of
Beneficial Owner
|
|
(direct, indirect)
|
|
|
Common Shares
(1)
|
|
|
Ownership
(2)
|
|
5% or More Shareholders:
|
|
|
|
|
|
|
|
|
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MF Ventures, LLC
|
|
Direct
|
|
|
2,267,297
|
(3)
|
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%
|
|
Cyrus
Capital Partners, L.P. managed funds and affiliates
|
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Direct
|
|
|
784,648
|
(4)
|
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%
|
|
(1)
|
These amounts include Common Shares, which could be
acquired upon exercise of outstanding convertible securities within 60
days.
|
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(2)
|
Based on Common Shares outstanding on , 2018.
|
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(3)
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Information was obtained from MFV pursuant to early
warning report dated August 15, 2017. MFV owns or
controls, directly or indirectly, an aggregate of 1,694,570 Common
Shares, and has the right to acquire an additional 572,727 Common Shares upon
exercise of certain convertible securities. The 1,694,570 Common Shares
currently held by MFV, in addition to the 572,727 Common Shares that can be
acquired upon exercise of certain convertible securities (for a total of
2,267,297 Common Shares), represent approximately % of all issued and
outstanding Common Shares as at the Record Date, calculated on a partially
diluted basis assuming the exercise of the convertible securities beneficially
owned by MFV only.
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66
(4)
|
Information was obtained from Cyrus Capital Partners,
L.P. pursuant to Form 3 filed February 23, 2018. Certain funds and
affiliates managed by Cyrus, directly and indirectly own these shares (the
Cyrus Group
). The Cyrus Group owns or controls, directly or
indirectly, an aggregate of 409,981 Common Shares, and has the right to
acquire an additional 374,667 Common Shares upon exercise of certain
convertible securities. The 409,981 Common Shares currently held by the
Cyrus Group, in addition to the 378,667 Common Shares that can be acquired
upon exercise of certain convertible securities (for a total of 784,648
Common Shares), represent approximately % of all issued and outstanding
Common Shares as at the Record Date, calculated on a partially diluted
basis assuming the exercise of the convertible securities beneficially
owned by the Cyrus Group. The Cyrus Group is comprised of Cyrus Capital
Partners, L.P., a Delaware limited partnership, (
Cyrus
), Crescent
1, L.P., a Delaware limited partnership (
Crescent
), CRS Master
Fund, L.P., a Cayman Islands exempted limited partnership, (
CRS
),
Cyrus Opportunities Master Fund II, Ltd., a Cayman Islands exempted
limited company, (
Cyrus Opportunities
), Cyrus Select
Opportunities Master Fund, Ltd., a Cayman Islands exempted limited
company, (
Cyrus Select
), Cyrus Capital Partners GP, L.L.C., a
Delaware limited partnership, (
Cyrus GP
), Cyrus Capital Advisors,
L.L.C., a Delaware limited liability company, (
Cyrus Advisors
),
and Mr. Stephen C. Freidheim. Each of Crescent, CRS, Cyrus Opportunities
and Cyrus Select, or collectively the Cyrus Funds, are private investment
funds engaged in the business of acquiring, holding and disposing of
investments in various companies. Cyrus is the investment manager of each
of the Cyrus Funds. Cyrus GP is the general partner of Cyrus. Cyrus
Advisors is the general partner of Crescent and CRS. Mr. Freidheim is the
managing member of Cyrus GP and Cyrus Advisors and is the Chief Investment
Officer of Cyrus. Crescent, CRS, Cyrus Opportunities, Cyrus Select and Mr.
Freidheim have entered into an investment management agreement with Cyrus
giving Cyrus full voting and disposition power over the Common Shares held
by the Cyrus Group.
|
The following table sets forth
each director and officer and the number of Common Shares beneficially owned or
controlled, directly or indirectly, by them or over which control or direction
is exercised, as of the Record Date.
|
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Number of
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Name of Directors and
|
|
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|
Type of Ownership
|
|
Shares
|
|
Beneficial
|
Officers
|
|
Position
|
|
(direct, indirect)
|
|
Common Shares
|
|
Ownership
|
Cheemin Bo-Linn
|
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Director
|
|
|
|
|
|
N/A
|
Eric Kelly
|
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Chief Executive
Officer, Director, and Chairman
|
|
Direct
|
|
51,985
|
|
%
|
Vivekanand Mahadevan
|
|
Lead Independent Director
|
|
Direct
|
|
5,133
|
|
%
|
Duncan J. McEwan
|
|
Director
|
|
|
|
|
|
N/A
|
Peter Tassiopoulos
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President, Director and Vice Chairman
|
|
Direct
|
|
4,000
|
|
%
|
Kurt L. Kalbfleisch
|
|
Chief Financial
Officer
|
|
Direct
|
|
22,125
|
|
%
|
Jenny Yeh
|
|
Senior Vice President and General Counsel
|
|
|
|
|
|
%
|
Previous Distributions
No dividends or distributions in
the last 5 years have been made by Overland Storage.
Commitments to Acquire Securities of the Company
Except as otherwise described in
this Proxy Statement, neither the Company nor its directors and executive
officers or, to the knowledge of the directors and executive officers of Sphere
3D, any of their respective associates or affiliates, any other insiders of
Sphere 3D or their respective associates or affiliates or any person acting
jointly or in concert with Sphere 3D has made any agreement, commitment or
understanding to acquire securities of Sphere 3D.
Interest of Informed Persons in Material Transactions
Except as otherwise disclosed in
this Proxy Statement, neither the Company, nor any director or officer of the
Company, nor any Shareholder beneficially owning or exercising control over 10%
or more of the voting securities, nor any proposed nominee for election as a director of the Company, nor
any associate or affiliate of any one of them, has or has had, at any time since
the commencement of the Companys last completed financial year, any material
interest, direct or indirect, in any transaction or proposed transaction that
has materially affected or would materially affect the Company or any of its
subsidiaries.
67
Material Changes in the Affairs of the Company
Except as described in this Proxy
Statement, the directors and executive officers of the Company are not aware of
any plans or proposals for material changes in the affairs of the Company.
Other Matters
At this time, we know of no other
matters to be submitted to our Shareholders at the Special Meeting. If any other
matters properly come before the Special Meeting or any adjournment or
postponement thereof in which your proxy has provided discretionary authority,
your Common Shares will be voted in accordance with the discretion of the
persons named on the enclosed form of proxy.
Where You Can Find More Information; Documents Incorporated
by Reference
The Company is subject to the
reporting requirements of the Exchange Act. Prior to January 1, 2018, the
Company was subject to the informational requirements of the Exchange Act
applicable to foreign private issuers. In accordance with those requirements, we
filed reports, including annual reports on Form 20-F, with the SEC containing
financial statements audited by an independent accounting firm. We also
furnished or filed with the SEC Reports of Foreign Private Issuer on Form 6-K
and other information with the SEC as required by the Exchange Act. Effective as
of January 1, 2018, we are subject to the informational requirements of the
Exchange Act applicable to U.S. domestic issuers and, in accordance with the
Exchange Act, we will file our annual and interim reports on Forms 10-K, 10-Q,
and 8-K. You may read and copy any document that we file with the SEC at the
Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, the Companys SEC filings also
are available to the public at the internet website maintained by the SEC at
www.sec.gov.
The SEC allows the Company to
incorporate by reference the information we file with the SEC into this Proxy
Statement, which means that we can disclose important information to you by
referring you to other documents filed separately with the SEC. The information
incorporated by reference is deemed to be part of this Proxy Statement, except
that information that we file later with the SEC will automatically update and
supersede this information. This Proxy Statement incorporates by reference the
documents listed below that have been previously filed with the SEC (other than,
in each case, documents or information deemed to have been furnished and not
filed in accordance with SEC rules):
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Our Annual Report on Form 20-F (File No. 001-36532) filed
with the SEC on March 31, 2017; and
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Our SEC Reports of Foreign Private Issuer on Form 6-K
(File No. 001-36532) filed with the SEC on November 13, 2017, August 14,
2017, and May 12, 2017.
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We also incorporate by reference
into this proxy statement additional documents that the Company may file with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, from the
date of this Proxy Statement until the date of the special meeting; provided,
however, that we are not incorporating by reference any additional documents or
information furnished and not filed with the SEC.
Additional information relating
to the Company may be found on SEDAR at www.sedar.com. Financial information
regarding the Company is provided in the Companys comparative financial
statements and managements discussion and analysis for its most recently
completed financial year. Shareholders may contact the Company at 240 Matheson
Blvd. East, Mississauga, ON L4Z 1X1 to request copies of the Companys financial
statements and managements discussion and analysis.
Any material change report
(except confidential material change reports) filed by the Company with
applicable securities commissions or similar authorities in Canada under the
Companys issuer profile on SEDAR at www.sedar.com from the date of this Proxy
Statement until the date of the special meeting is also incorporated by
reference herein.
You may obtain copies, without charge, of documents
incorporated by reference in this Proxy Statement, by requesting them in writing
or by telephone from us as follows:
68
Sphere 3D Corp.
240 Matheson Blvd. East
Mississauga,
Ontario L4Z 1X1
Attention: Investor Relations
(800) 729-8725
THIS PROXY STATEMENT DOES NOT
CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON
TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT
JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED
BY REFERENCE INTO THIS PROXY STATEMENT TO VOTE YOUR SHARES AT THE SPECIAL
MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS
DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT
IS DATED , 2018. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING
OF THIS PROXY STATEMENT TO SHAREHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE
CONTRARY.
Approval by the Directors
The Board of Directors has
approved the content and delivery of this Proxy Statement.
|
By order of the Board of Directors,
|
|
|
|
|
|
KURT L. KALBFLEISCH
|
Dated: , 2018
|
Secretary
|
69
Annex A: Share Purchase Agreement
EXECUTION VERSION
SHARE PURCHASE AGREEMENT
by and among:
SILICON VALLEY TECHNOLOGY PARTNERS LLC
a Delaware
limited liability company;
SPHERE 3D CORP.
an Ontario corporation
and
OVERLAND STORAGE, INC.
a California corporation
_________________________________
Dated as of February 20, 2018
_________________________________
CONFIDENTIAL
TABLE OF CONTENTS
i
CONFIDENTIAL
TABLE OF CONTENTS
(continued)
ii
CONFIDENTIAL
TABLE OF CONTENTS
(continued)
iii
CONFIDENTIAL
Exhibits
Exhibit A
|
FIRPTA Notice
|
|
|
Exhibit B
|
FIRPTA Letter
|
|
|
Exhibit C
|
Example Closing
Working Capital
|
|
|
Exhibit D
|
Financing
Representations
|
iv
SHARE PURCHASE AGREEMENT
THIS SHARE PURCHASE AGREEMENT (
Agreement
)
is made and entered into as of February 20, 2018, by and among SILICON VALLEY
TECHNOLOGY PARTNERS LLC, a Delaware limited liability company
(
Purchaser
); OVERLAND STORAGE, INC., a California corporation (the
Acquired Company
), and SPHERE 3D CORP., an Ontario corporation
(
Seller
).
RECITALS
WHEREAS,
Seller owns all of the issued and outstanding shares of capital stock of the
Acquired Company (the entirety of such issued and outstanding capital stock for
the Acquired Company, the
Shares
);
WHEREAS, subject to the terms and conditions of this
Agreement, Seller desires to sell to Purchaser, and Purchaser desires to
purchase from Seller, the Shares; and
WHEREAS, for purposes of this
Agreement, capitalized terms herein have the meanings provided herein, including
the meanings set forth in
Section 10.12
.
NOW,
THEREFORE, in consideration of the foregoing and the respective covenants,
agreements, representations and warranties set forth herein, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
THE SHARE PURCHASE
1.1
Purchase and Sale of Shares
. At the Closing, upon the terms and subject
to the conditions set forth in this Agreement, Seller shall sell, assign,
transfer and convey to Purchaser, and Purchaser shall purchase and acquire from
Seller, all of the Shares, free and clear from all Liens, in consideration for
payment of the Purchase Price (the
Share Purchase
).
1.2
Closing
. The consummation of the transactions contemplated by this
Agreement and the other transactions that are required to be consummated
concurrently therewith (such concurrent transactions, together with the Share
Purchase, the
Contemplated Transactions
, and the time at which the
Contemplated Transactions occur, the
Closing
) shall take place at the
offices of OMelveny & Myers LLP, 2765 Sand Hill Road, Menlo Park,
California, 94065, at 10:00 a.m. (Pacific Time) on a date to be designated by
Purchaser, which shall be no later than the first (1st) Business Day after the
satisfaction or waiver of the conditions set forth in Article VII (other than
those that by their terms are to be satisfied or waived at the Closing, but
subject to the satisfaction or, to the extent permissible, waiver of those
conditions at the Closing), or at such other place, time or date as Purchaser
and Seller may jointly designate in writing (including through electronic
exchange of signatures). The date on which the Closing actually takes place is
referred to in this Agreement as the
Closing Date
.
1.3
Purchase Price
.
(a)
For purposes of this Agreement, the
Purchase Price
shall mean an amount
of cash equal to (a) $45,000,000,
less
(b) the amount, if any, by which
Closing Working Capital is less than Target Working Capital,
plus
(c) the
amount, if any, by which Closing Working Capital is greater than Target Working
Capital. At the Closing, Purchaser shall pay the Estimated Purchase Price to Seller in
immediately available funds to an account or accounts designated in writing by
Seller.
A-1
(b)
No later than two (2) Business Days prior to the Closing Date, Seller shall
prepare and deliver to Purchaser a consolidated balance sheet of the Acquired
Company as of the Closing Date (the
Estimated Closing Statement
),
including the Companys good faith estimates of the Closing Working Capital,
together with a calculation of the Purchase Price (the
Estimated Purchase
Price
). The Estimated Closing Statement and all amounts, estimates,
determinations and calculations contained therein shall be prepared and
calculated in accordance with
Section 1.3(h)
.
(c)
Purchaser shall cause to be prepared and, as soon as practical, but in no event
later than thirty (30) days after the Closing Date, shall cause to be delivered
to Seller, a statement (the
Closing Statement
) containing the actual
amount of Closing Working Capital, together with a calculation of the Purchase
Price based on such amount. The Closing Statement and all amounts, estimates,
determinations and calculations contained therein shall be prepared and
calculated in accordance with
Section 1.3(h)
. Purchaser shall, and shall
cause the Acquired Company and its auditors to, make available to Seller and its
auditors all records and work papers used in preparing the Closing
Statement.
(d)
If Seller disagrees in whole or in part with the Closing Statement, then, within
thirty (30) days after its receipt of the Closing Statement, Seller shall notify
Purchaser of such disagreement in writing (the
Notice of Disagreement
),
setting forth in reasonable detail the particulars of any such disagreement. Any
Notice of Disagreement shall include a copy of Purchasers Closing Statement
marked to indicate the specific line items of the Closing Statement that are in
dispute (the
Disputed Line Items
) and shall be accompanied by Sellers
calculation of each of the Disputed Line Items and Sellers revised Closing
Statement setting forth its determination of the Estimated Purchase Price and
any component thereof. All items that are not Disputed Line Items shall be
final, binding and conclusive for all purposes hereunder unless the resolution
of a Disputed Line Item affects an undisputed item, in which case such
undisputed item shall remain open and be considered a Disputed Line Item to the
extent of such corresponding effect. In the event that Seller does not provide a
Notice of Disagreement within such thirty (30)-day period, Seller shall be
deemed to have accepted in full the Closing Statement as prepared by Purchaser,
and such Closing Statement shall become final, binding and conclusive for all
purposes hereunder as of 5:00 p.m. California time on such thirtieth (30th) day.
In the event any Notice of Disagreement is properly and timely provided,
Purchaser and Seller shall use commercially reasonable efforts for a period of
thirty (30) days (or such longer period as they may mutually agree) to resolve
any Disputed Line Items. During such thirty (30)-day period, Purchaser and
Seller shall cooperate with each other and shall have reasonable access to the
books and records, working papers, schedules and calculations of the other used
in the preparation of the Closing Statement and the Notice of Disagreement and
the determination of the Purchase Price and Disputed Line Items and the officers
and other employees of the other party, in each case, to the extent reasonably
necessary or appropriate in connection with the resolution of the Disputed Line
Items. All Disputed Line Items agreed to during such thirty (30)-day period
shall be final, conclusive and binding on the parties hereto and not subject to
further appeal. If, at the end of such period, Purchaser and Seller are unable
to resolve all such Disputed Line Items, then any such remaining Disputed Line
Items shall be referred to a nationally recognized independent accounting firm
mutually and reasonably acceptable to Purchaser and Seller (the
Accounting
Firm
). Purchaser and Seller will enter into reasonable and customary
arrangements for the services to be rendered by the Accounting Firm under this
Section 1.3(d)
, such services to be provided in the Accounting Firms
capacity as an accounting expert and not an arbitrator. The Accounting Firm
shall be directed to determine as promptly as practicable whether the Purchase
Price as set forth in the Closing Statement requires adjustment. The Accounting
Firm shall be instructed that, in making such determination, it may not assign a
value greater than the greatest value for such item claimed by either party or
smaller than the smallest value for such item claimed by either party, and that
the Accounting Firm is only to consider matters still in dispute between
Purchaser and Seller. Purchaser, the Acquired Company and Seller shall each
furnish to the Accounting Firm such work papers and other documents and
information relating to the Disputed Line Items, and shall provide interviews
and answer questions, as such Accounting Firm may reasonably request. The
determination of the Accounting Firm shall be final, conclusive and binding on
the parties and shall be based solely on the terms of this Agreement and the
written submissions by Purchaser and Seller and not by independent review.
A-2
(e)
The costs and expenses for the services of the Accounting Firm shall be borne by
Purchaser, on the one hand, and Seller, on the other hand, in inverse relation
to their success with respect to any disputes submitted to the Accounting Firm
for resolution. Subject to the foregoing sentence, each party shall be
responsible for its own fees and expenses incurred in connection with this
Section 1.3
.
(f)
After the Purchase Price has been finally determined in accordance with this
Section 1.3
, (the Purchase Price as so determined, the
Final Purchase
Price
), the following payments shall be made:
(i) If
the Final Purchase Price exceeds the Estimated Purchase Price, then Purchaser
shall pay an amount in cash equal to such excess to Seller; or
(ii) If
the Estimated Purchase Price exceeds the Final Purchase Price, then Seller shall
pay an amount in cash equal to such excess to the Acquired Company (the
Shortfall Amount
); provided, however, that if the payment of the
Shortfall Amount by Seller to the Acquired Company would reasonably be expected
to result in the Seller Working Capital equaling $2,000,000 or less immediately
after such payment, the Shortfall Amount shall be reduced (but to no less than
zero) such that the Seller Working Capital equals $2,000,000 immediately after
payment of the adjusted Shortfall Amount.
(g)
Any amount payable pursuant to
Section 1.3(f)
shall be paid within five
(5) Business Days after the determination of the Final Purchase Price by wire
transfer of immediately available funds to the account designated in writing by
the recipient thereof. Payments pursuant to
Section 1.3(f)
shall be
treated for all purposes as adjustments to the Purchase Price.
(h)
The Estimated Closing Statement, the Closing Statement and the determinations
and calculations contained therein shall be prepared and calculated on a
consolidated basis for the Acquired Company and its Subsidiaries in accordance
with GAAP and using the same accounting principles, practices, procedures,
policies and methods (with consistent classifications, judgments, inclusions,
exclusions and valuation and estimation methodologies) used and applied by
Seller in the preparation of the Statement of Assets and Liabilities, except
that such statements, calculations and determinations shall follow the defined
terms contained in this Agreement whether or not such terms are consistent with
GAAP.
1.4
Withholding Taxes
. Purchaser, the Acquired Company and Seller shall be
entitled to deduct and withhold from any payment hereunder any amount that
Purchaser, the Acquired Company or Seller, as
applicable, may be required to deduct and withhold under any Legal Requirement;
provided
, that Purchaser and Seller shall use reasonable efforts to
mitigate any such deduction or withholding, including by requesting applicable
withholding forms. All such withheld amounts that are paid over to the
appropriate Governmental Entity shall be treated as delivered to the applicable
payee hereunder to the extent paid over to the appropriate Governmental Entity.
A-3
1.5
Further Action
. If, at any time after the Closing, any further action is
reasonably determined by Purchaser to be necessary or desirable to carry out the
purposes of this Agreement or to vest Purchaser with full right, title and
possession of and to the Shares and all rights and property of the Acquired
Company, the Seller will undertake its reasonable best efforts to timely take
such action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
SELLER AND THE ACQUIRED
COMPANY
Seller
and the Acquired Company represent and warrant to Purchaser as of the date
hereof, except (a) as set forth in the disclosure letter supplied by Seller to
Purchaser, dated as of the date hereof (the
Acquired Company Disclosure
Letter
), (b) as disclosed or reflected in any forms, reports, statements,
certifications and other documents (including all exhibits, amendments and
supplements thereto) that Seller or the Acquired Company filed with or furnished
to the Securities Exchange Commission (the
SEC
) or that is publicly
available on Sellers SEDAR profile on or prior to the date of this Agreement
(excluding any risk factor disclosures and any forward-looking statements or
other statements that are cautionary or forward-looking in nature), and (c) with
respect to the Merged Business and the SNAP Business, as follows:
2.1
Organization; Standing and Power; Charter Documents; Subsidiaries
.
(a)
Organization; Standing and Power
. Each of the Acquired Company and its
Subsidiaries is a corporation duly organized, validly existing and in good
standing (where such concept exists) under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now conducted and to own or lease its properties, in each case
as described in the Public Filings. Each of the Acquired Company and its
Subsidiaries is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction in which the conduct of its business or its
ownership or leasing of property makes such qualification or leasing necessary
unless the failure to so qualify has not had and would not reasonably be
expected to have a Material Adverse Effect.
(b)
Charter Documents
. Seller has delivered or made available to Purchaser a
true and correct copy of the certificate of incorporation and bylaws, or
memorandum and articles of association, as applicable, of the Acquired Company,
each as amended to date (collectively, the
Acquired Company Charter
Documents
), and each such instrument is in full force and effect. No
Acquired Company is in violation of any of the provisions of the Acquired
Company Charter Documents.
2.2
Capital Structure
. The authorized capital of the Acquired Company
consists of 5,000 Shares, of which 1,000 Shares are issued and outstanding. All
of the issued and outstanding Shares have been duly authorized and validly
issued and are fully paid, nonassessable and free of pre-emptive rights and were
issued in full compliance with applicable provincial, state and federal
securities law and any rights of third parties. All of the outstanding Shares
are owned by Seller, beneficially and of record, subject to
no lien, encumbrance or other adverse claim. All of the issued and outstanding
shares of capital stock of each Subsidiary of the Acquired Company have been
duly authorized and validly issued and are fully paid, nonassessable and free of
pre-emptive rights, were issued in full compliance with applicable provincial,
state and federal securities law and any rights of third parties and are owned,
directly or indirectly, by the Acquired Company, beneficially and of record,
subject to no lien, encumbrance or other adverse claim. No Person is entitled to
pre-emptive or similar statutory or contractual rights with respect to any
securities of the Acquired Company. There are no outstanding warrants, options,
convertible securities or other rights, agreements or arrangements of any
character under which the Acquired Company or any of its Subsidiaries is or may
be obligated to issue any equity securities of any kind. There are no voting
agreements, buy-sell agreements, option or right of first purchase agreements or
other agreements of any kind among the Acquired Company and Seller relating to
the securities of the Acquired Company held by Seller. No Person has the right
to require the Acquired Company to register any securities of the Acquired
Company under the 1933 Act (or Canadian Securities Laws or other applicable
securities laws), whether on a demand basis or in connection with the
registration of securities of the Acquired Company for its own account or for
the account of any other Person. The Acquired Company does not have outstanding
shareholder purchase rights or any similar arrangement in effect giving any
Person the right to purchase any equity interest in the Acquired Company upon
the occurrence of certain events.
A-4
2.3
Authority
. The Acquired Company has the corporate power and authority to
enter into this Agreement and, other than the receipt of the Seller Shareholder
Approval, has taken all requisite action on its part, its officers, directors
and shareholders necessary for (a) the authorization, execution and delivery of
this Agreement and (b) the authorization of the performance of all obligations
of the Acquired Company hereunder. This Agreement constitutes the legal, valid
and binding obligations of the Acquired Company, enforceable against the
Acquired Company in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability, relating to or affecting creditors rights generally and
to general equitable principles.
2.4
Non-Contravention
.
(a)
Except as listed on
Schedule 2.4
of the Acquired Company Disclosure
Letter, the execution and delivery of this Agreement by the Acquired Company
does not, and performance of this Agreement by the Acquired Company will not:
(i) conflict with or violate the Acquired Company Charter Documents, (ii)
conflict with or violate any material Legal Requirement applicable to the
Acquired Company or by which the Acquired Company or its properties is bound or
affected, or (iii) result in any material breach of or constitute a material
default (or an event that with notice or lapse of time or both would become a
material default) under, or materially impair the Acquired Companys rights or
alter the rights or obligations of any third party under, or give to others any
rights of termination, material amendment, acceleration or cancellation of, or
result in the creation of a Lien on any of the properties or assets of the
Acquired Company. No consent under any Acquired Company Material Contract to
which the Acquired Company is a party or by which it is bound is required to be
obtained, and the Acquired Company is not and will not be required to give any
notice to any Person, in either case, in connection with the execution, delivery
or performance of this Agreement or the consummation of the Share Purchase or
any of the other transactions contemplated hereby.
(b)
No consent, approval, Order or authorization of, or registration, declaration or
filing with any Governmental Entity is required to be obtained or made by the Acquired Company in connection with the
execution and delivery of this Agreement or the performance of the Share
Purchase and other transactions contemplated hereby.
A-5
2.5
Financial Statements; Public
Filings
.
(a)
Schedule 2.5(a)
of the Acquired Company Disclosure Letter includes an
unaudited balance sheet, statement of income and statement of cash flows as of
December 31, 2016 and December 31, 2017 (the
Statement of Assets and
Liabilities Date
) of the Acquired Company and its Subsidiaries (exclusive
of the Merged Business, but inclusive of the SNAP Business) on a consolidated
basis (collectively, the
Statement of Assets and Liabilities
). The
Statement of Assets and Liabilities are based on the books and records of the
Acquired Company and present fairly, in all material respects, the consolidated
financial position of the Acquired Company and its Subsidiaries (exclusive of
the Merged Business, but inclusive of the SNAP Business) as of the dates shown
and its consolidated results of operations and cash flows for the periods shown,
and such financial statements have been prepared in accordance with GAAP applied
on a consistent basis (except as may be disclosed therein or in the notes
thereto), subject to the absence of footnote disclosures and changes resulting
from normal year-end adjustments.
(b)
Except as set forth in the Public Filings filed prior to the date hereof and
except as set forth in the Statement of Assets and Liabilities, neither the
Acquired Company nor any of its Subsidiaries has incurred any liabilities,
contingent or otherwise, except those incurred in the ordinary course of
business, consistent with past practices since the Statement of Assets and
Liabilities Date, none of which, individually or in the aggregate, have had or
would reasonably be expected to have a Material Adverse Effect.
(c)
With respect to the Acquired Company only, at the time of filing thereof, (i)
the SEC Filings complied as to form in all material respects with the applicable
requirements of the 1934 Act and did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they were made, not misleading, and (ii) the CSA
Filings complied as to form in all material respects with the applicable
requirements under Canadian Securities Laws, and did not, as of the date filed,
contain any Misrepresentations.
2.6
Absence of Certain Changes or Events
. Since the Statement of Assets and
Liabilities Date until the date hereof, there has not been:
(a) an event, occurrence or
development that has had, or would reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
(b)
any declaration, setting aside or payment of any dividend on, or other
distribution (whether in cash, stock or property) in respect of, any Shares;
(c) any purchase, redemption or other
acquisition by the Acquired Company of any Shares or any other securities of the
Acquired Company or any options, warrants, calls or rights to acquire any such
shares or other securities;
(d) any split, combination or
reclassification of any Shares;
(e) any material change by the
Business in its accounting methods, principles or practices;
A-6
(f)
any revaluation by the Acquired Company of any of its assets, including writing
down the value of capitalized inventory or writing off notes or accounts
receivable, that is material to the Business in the aggregate, other than in the
ordinary course of business;
(g)
any initiation or settlement of any litigation by the Acquired Company
reasonably expected to result in the payment to or by the Acquired Company of
more than $250,000;
(h)
any incurrence of Indebtedness by the Acquired Company in excess of $250,000,
other than in the ordinary course of business;
(i)
any cancellation of any Indebtedness owed to the Acquired Company or waiver by
the Acquired Company of any claims or rights of substantial value;
(j)
any sale, lease, transfer, or assignment of any of the Acquired Companys assets
that are material to the Business, other than sales of inventory and the grant
of non-exclusive licenses, each in the ordinary course of business;
(k)
any transfer or assignment of or grant of any license or sublicense under or
with respect to any Intellectual Property owned by the Acquired Company (except
non-exclusive licenses or sublicenses granted in the ordinary course of business
consistent with past practice);
(l)
any abandonment or lapse of or failure to maintain in full force and effect any
Registered IP (except for any act or omission taken in connection with the
exercise of the Acquired Companys reasonable business judgment), or failure to
take or maintain reasonable measures to protect the confidentiality or value of
any material Trade Secrets included in the Intellectual Property owned by the
Acquired Company;
(m)
any capital expenditure by the Acquired Company in excess of $250,000; or
(n)
any adoption, material modification or termination of any collective bargaining
or other agreement with a union, in each case whether written or oral.
2.7
Tax Matters
. The Acquired Company and each Subsidiary has prepared and
filed (or filed applicable extensions therefore) all Tax Returns required to
have been filed by the Acquired Company or such Subsidiary with all appropriate
governmental agencies and paid all taxes shown thereon or otherwise owed by it,
other than any such Taxes which the Acquired Company or any Subsidiary are
contesting in good faith and for which adequate reserves have been provided and
reflected in the Statement of Assets and Liabilities. The charges, accruals and
reserves on the books of the Acquired Company in respect of Taxes for all fiscal
periods are adequate in all material respects, and there are no material unpaid
assessments against the Acquired Company or any Subsidiary nor, to the Knowledge
of Seller, any basis for the assessment of any additional Taxes, penalties or
interest for any fiscal period or audits by any federal, state or local taxing
authority except for any assessment which is not material to the Acquired
Company and its Subsidiaries, taken as a whole. All Taxes that the Acquired
Company or any Subsidiary is required to withhold or to collect for payment have
been duly withheld and collected and paid to the proper Governmental Entity or
third party when due, other than any such Taxes which the Acquired Company or
any Subsidiary are contesting in good faith and for which adequate reserves have
been provided and reflected in the Statement of Assets and Liabilities.
A-7
There are no Tax liens or claims
pending or, to the Knowledge of Seller, threatened in writing against the
Acquired Company or any Subsidiary or any of their respective assets or
property. There are no outstanding Tax sharing agreements or other such
arrangements between the Acquired Company and any Subsidiary or other
corporation or entity.
2.8
Intellectual Property
.
(a)
The Acquired Company and the Subsidiaries own, or have obtained valid and
enforceable licenses for, or other rights to use, the Intellectual Property
necessary for the conduct of the Business as currently conducted and as
described in the Public Filings as being owned or licensed by them, except where
the failure to own, license or have such rights would not reasonably be expected
to result in a Material Adverse Effect, individually or in the aggregate. (i) To
the Knowledge of Seller, there are no third parties who have or will be able to
establish ownership rights to any such Intellectual Property, except for the
ownership rights of the owners of the Intellectual Property which is licensed to
the Acquired Company as described in the Public Filings or where such rights
would not reasonably be expected to result in a Material Adverse Effect,
individually or in the aggregate, (ii) there is no pending or, to the Knowledge
of Seller, threat of any, action, suit, proceeding or claim by others (to which
the Acquired Company or any of its Subsidiaries is a party) challenging the
Acquired Companys or any Subsidiarys rights in or to, or the validity,
enforceability, or scope of, any Intellectual Property owned by or licensed to
the Acquired Company or any Subsidiary or claiming that the use of any
Intellectual Property by the Acquired Company or any Subsidiary in their
respective businesses as currently conducted infringes, violates or otherwise
conflicts with the Intellectual Property of any third party, and (iii) to the
Knowledge of Seller, the use by the Acquired Company or any Subsidiary of any
Intellectual Property by the Acquired Company or any Subsidiary in their
respective businesses as currently conducted does not infringe, violate or
otherwise conflict with the intellectual property rights of any third party.
(b)
The Acquired Company and its Subsidiaries have taken all reasonable steps to
maintain the secrecy of their material Confidential Information included in the
Intellectual Property owned by the Acquired Company or its Subsidiaries, except
as has not had, and would not reasonably be expected to result in, a Material
Adverse Effect, individually or in the aggregate.
(c)
Schedule 2.8(c)
of the Acquired Company Disclosure Letter lists all
issued patents, patent applications, registered copyrights and copyright
applications, registered trademarks and trademark applications owned by or filed
in the name of the Acquired Company or its Subsidiaries, excluding any items
that are abandoned, cancelled, expired, withdrawn, or finally refused (without
right of appeal) (
Registered IP
) and (ii) identifies all third parties
that have any ownership interest in the Registered IP, including without
limitation joint owners and/or co-applicants.
(d)
The Acquired Company and its Subsidiaries have a policy requiring employees,
consultants and contractors who have materially contributed to the development
or creation of any material Intellectual Property intended to be owned by the
Acquired Company or its Subsidiaries to execute a confidentiality and assignment
agreement which (i) assigns to the Acquired Company or one of its Subsidiaries
all right, title and interest in such Intellectual Property and (ii) provides
reasonable protection for Confidential Information of the Acquired Company and
its Subsidiaries.
A-8
(e)
To the Knowledge of Seller, immediately following the Asset Transfer, the assets
of the Acquired Company or its Subsidiaries do not contain any software that is
intended to: (i) disrupt, disable, harm, or otherwise impede in any manner,
including aesthetical disruptions or distortions, the operation of the business
of the Acquired Company and its Subsidiaries; (ii) disable the assets or any
computer system or impair in any way their operation based on the elapsing of a
period of time, the exceeding of an authorized number of copies, or the
advancement to a particular date or other numeral (e.g., time bombs, time locks,
or drop dead devices); or (iii) permit the Seller or any third party to track,
monitor, or otherwise report the operation of the business of the Acquired
Company and its Subsidiaries on or after the Closing.
(f)
The Acquired Company and its Subsidiaries are in compliance with the applicable
licenses for Open Source Materials used by the Acquired Company or its
Subsidiaries in their respective businesses, except as has not had, and would
not reasonably be expected to result in, a Material Adverse Effect, individually
or in the aggregate.
Open Source Materials
means software or other
material that is distributed as free software, open source software or under
a similar licensing or distribution model (including but not limited to the GNU
General Public License (GPL), GNU Lesser General Public License (LGPL), Mozilla
Public License (MPL), BSD licenses, the Artistic License, the Netscape Public
License, the Sun Community Source License (SCSL), the Sun Industry Standards
License (SISL) and the Apache License).
2.9
Sufficiency of Assets
. Subject to the consummation of the Asset Transfer,
the assets of the Acquired Company and the Subsidiaries constitute all of the
assets and rights necessary to allow the Acquired Company and the Subsidiaries
to operate the Business in the manner in which it is currently being conducted,
in all material respects.
2.10
Compliance; Permits
.
(a)
Compliance
. The Acquired Company is not in conflict with, or in default
or in violation of, any Legal Requirement applicable to such entity or by which
such entity or its businesses or properties is bound or affected, except for
those conflicts, defaults or violations that, individually or in the aggregate,
would not be reasonably expected to have a Material Adverse Effect, individually
or in the aggregate. No investigation or review by any Governmental Entity is
pending or, to the Knowledge of Seller, has been threatened in writing against
the Acquired Company. There is no judgment, injunction, Order or decree binding
upon the Acquired Company.
(b)
Permits
. The Acquired Company and each Subsidiary possess adequate
certificates, authorities or permits issued by appropriate Governmental Entities
necessary to conduct the business now operated by it, except to the extent
failure to possess such certificates, authorities or permits would not
reasonably be expected to have a Material Adverse Effect, individually or in the
aggregate, and neither the Acquired Company nor any Subsidiary has received any
notice of proceedings relating to the revocation or modification of any such
certificate, authority or permit that, if determined adversely to the Acquired
Company or such Subsidiary, would reasonably be expected to have a Material
Adverse Effect, individually or in the aggregate.
2.11
Litigation
. As of the date hereof, there are no claims, suits,
actions or proceedings pending or, to the Knowledge of Seller, threatened in
writing against the Acquired Company or otherwise related to the Business.
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2.12
Brokers and Finders Fees
. Except for any fees or commissions
payable by Seller, the Acquired Company has not incurred, nor will the Acquired
Company incur, directly or indirectly, any liability for brokerage or finders
fees or agents commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
2.13
Employee Benefit Plans
.
(a)
Employee Benefit Plans
. As used in this Agreement,
Company Benefit
Plan
means (i) employee benefit plan, as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (
ERISA
),
and (ii) each other material plan, program, policy, agreement or other
arrangement involving direct or indirect compensation, employment, severance,
retention, change in control, consulting, health benefits, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
deferred compensation, profit-sharing, bonuses, stock options, stock
appreciation rights, equity based grants, other forms of incentive compensation,
post-retirement insurance benefits (including retiree medical and retiree life),
or other benefits, whether or not reduced to writing, whether funded or
unfunded, in each case which is or has been entered into, sponsored, maintained
or contributed to by the Acquired Company or with respect to which the Acquired
Company has or may in the future have any liability (contingent or otherwise)
with respect to any current or former Employee.
Schedule 2.13(a)
of the
Acquired Company Disclosure Letter sets forth each Company Benefit Plan. Seller
has made available to Purchaser accurate, current and complete copies of each
Company Benefit Plan.
(b)
Legal Compliance
. (i) Each Company Benefit Plan has been maintained and
administered in accordance with its terms and with the requirements prescribed
by applicable Legal Requirements, including ERISA and the Code, in each case in
all material respects; (ii) no action, suit or claim (excluding claims for
benefits incurred in the ordinary course) has been brought or is pending or, to
the Knowledge of Seller, threatened against or with respect to any Company
Benefit Plan; and (iii) there are no audits, inquiries or proceedings pending
or, to the Knowledge of Seller, threatened by any Governmental Entity with
respect to any Company Benefit Plan. Each Company Benefit Plan intended to be
qualified under Section 401(a) of the Code either: (1) has obtained a currently
effective favorable determination notification, advisory and/or opinion letter,
as applicable, as to its qualified status (or the qualified status of the master
or prototype form on which it is established); or (2) still has a remaining
period of time in which to apply for or receive such letter and to make any
amendments necessary to obtain a favorable determination.
(c)
Retiree Health Benefits
. No Company Benefit Plan provides, or reflects or
represents any liability to provide, health benefits to any Employee, or any
spouse or dependent of any Employee, beyond the Employees termination of
employment with the Acquired Company other than (i) coverage mandated by Part 6
of Title I of ERISA or Section 4980B of the Code or (ii) benefits in the nature
of severance pay with respect to one or more of the employment contracts set
forth on
Schedule 2.13(a)
of the Acquired Company Disclosure Letter.
(d)
Defined Benefit, Multiple Employer and Multiemployer Plans
. At no time in
the past six (6) years has the Acquired Company or any other person or entity
under common control within the meaning of Section 414(b), (c), (m) or (o) of
the Code with the Acquired Company (each an
ERISA Affiliate
) maintained
or contributed to, or has any liability that has not been satisfied in full with
respect to, any (i) multiemployer plan (as defined in Section 3(37) of ERISA),
(ii) multiple employer plan as defined in Section 413 of the Code, (iii) a plan subject to Title IV of
ERISA, (iv) a plan subject to the minimum funding standards of Section 412 of
the Code or Section 302 of ERISA or (v) a multiple employer welfare
arrangement (as defined in Section 3(40) of ERISA).
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(e)
Effect of Transaction
. The execution of this Agreement and the
consummation of the transactions contemplated by this Agreement will not (either
alone or together with any other event which, standing alone, would not by
itself trigger such entitlement or acceleration) constitute an event under any
Company Benefit Plan that will result in any material payment (whether of
severance pay or otherwise), acceleration of payment, forgiveness of
Indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee. There is no Contract or arrangement with
an Employee to which the Acquired Company is a party as of the date of this
Agreement, that would reasonably be expected to give rise to the payment of any
amount that would not be deductible pursuant to Section 280G of the Code or
requires a gross up or other payment under Sections 280G, 4999 or 409A of the
Code.
2.14
Labor and Employment Matters
. The Acquired Company is not and has been a
party to any collective bargaining agreement or union Contract with respect to
Employees and no collective bargaining agreement is being negotiated by the
Acquired Company. There is not, and has never been any union or similar labor
organization representing or purporting to represent any Employee in connection
with their employment with the Acquired Company, and no union or similar labor
organization or group of Employees is seeking or has sought to organize
Employees for the purpose of collective bargaining. There is no and there never
has been any labor dispute, strike, work stoppage, slowdown, concerted refusal
to work overtime or unfair labor practice claims against the Acquired Company
pending, or threatened in writing. The Acquired Company is in material
compliance with all Legal Requirements respecting employment and employment
practices including but not limited to hiring, promotion, termination,
immigration, employee classification (employee/independent contractor and
exempt/nonexempt), harassment, retaliation, discrimination, workers
compensation, terms and conditions of employment, employee safety and wages and
hours. There are no material claims, actions, causes of action, demands,
lawsuits, inquiries, audits or litigation against the Acquired Company pending,
or to the Knowledge of Seller, threatened in writing to be brought or filed, by
or with any Governmental Entity or arbitrator in connection with the employment
of any Employee, including, without limitation, any claim relating to unfair
labor practices, employment discrimination, harassment, retaliation, equal pay,
wages and hours or any other employment related matter arising under any
applicable Legal Requirement.
2.15
Title to Properties
. The Acquired Company and each Subsidiary has
good and marketable title to all real properties and all other properties and
assets (excluding Intellectual Property assets which are the subject of
Section 2.8
hereof) owned by it, in each case free from Liens that would
materially affect the value thereof or materially interfere with the use made or
currently planned to be made thereof by them; and the Acquired Company and each
Subsidiary holds any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
2.16
Environmental Matters
. To the Knowledge of Seller, neither the
Acquired Company nor any Subsidiary is in violation of any statute, rule,
regulation, decision or order of any Governmental Entity relating to the use,
disposal or release of hazardous or toxic substances or relating to the
protection or restoration of the environment or human exposure to hazardous or
toxic substances (collectively,
Environmental Laws
), owns or operates
any real property contaminated with any substance that is
subject to any Environmental Laws, is liable for any off-site disposal or
contamination pursuant to any Environmental Laws, or is subject to any claim
relating to any Environmental Laws, which violation, contamination, liability or
claim has had or would reasonably be expected to have a Material Adverse Effect,
individually or in the aggregate; and there is no pending or, to the Knowledge
of Seller, threatened investigation that might lead to such a claim.
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2.17
Material Contracts
.
Schedule 2.17
of the Acquired Company
Disclosure Schedule sets forth each Acquired Company Material Contract. Each
Acquired Company Material Contract is (a) a valid and binding obligation of the
Acquired Company and, to the Knowledge of Seller, the other party thereto and
(b) in full force and effect and enforceable by the Acquired Company and, to the
Knowledge of Seller, each other party thereto, in accordance with its terms,
except (x) if the failure to be in full force and effect, individually or in the
aggregate, would not be material to the conduct of the Business or financial
position of the Acquired Company or (y) as may be limited by (i) applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws from time to
time in effect which affect creditors rights generally, or (ii) legal and
equitable limitations on the availability of specific remedies. The Acquired
Company has not violated any provision of, or committed or failed to perform any
act which, with or without notice, lapse of time or both would constitute a
material breach or default under the provisions of, any Acquired Company
Material Contract; nor has the Acquired Company received written notice alleging
any such violation, failure, breach or default. Complete and correct copies of
each Acquired Company Material Contract (including all modifications, amendments
and supplements thereto and waivers thereunder) have been made available to
Purchaser. There are no material disputes pending or, to the Knowledge of
Seller, threatened under any Acquired Company Material Contract.
2.18
Interested Party Transactions
. Except as set forth in
Schedule
2.18
of the Acquired Company Disclosure Schedule, none of the officers or
directors of the Acquired Company and, to the Knowledge of Seller, none of the
employees of the Acquired Company is presently a party to any transaction with
the Acquired Company or any Subsidiary (other than as holders of stock options,
restricted stock units, and/or warrants, and for services as employees, officers
and directors), including any Contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the Knowledge of Seller, any entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
2.19
Insurance
. The Acquired Company and each Subsidiary maintain in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted and properties owned or
leased by the Acquired Company and each Subsidiary.
2.20
No Other Representations or Warranties; Disclosure
. Except for the
representations and warranties of Seller and the Acquired Company expressly set
forth in this Agreement, neither Seller, the Acquired Company nor any other
Person makes any other express or implied representation or warranty on behalf
of the Acquired Company, or otherwise, in each case in respect of the Acquired
Company or the Business, any of their respective assets and liabilities or
otherwise. EXCEPT AS SET FORTH IN THIS
ARTICLE II
and
ARTICLE III
,
NEITHER SELLER NOR THE ACQUIRED COMPANY MAKES ANY REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED (INCLUDING THOSE REFERRED TO IN THE UNIFORM COMMERCIAL CODE
OR IN ANY STATUTE OR RULE OF LAW THAT CAN BE LIMITED OR WAIVED OR ANY
REPRESENTATION OR WARRANTY THAT WOULD OTHERWISE BE APPLICABLE TO REAL PROPERTY),
AND THE ASSETS AND BUSINESS OF THE ACQUIRED COMPANY SHALL BE DEEMED TO BE AS
IS, WHERE IS ON THE CLOSING DATE, AND IN THEIR THEN PRESENT CONDITION, AND
PURCHASER SHALL RELY UPON ITS OWN EXAMINATION THEREOF. IN ANY EVENT, THE
ACQUIRED COMPANY MAKES NO WARRANTY OF MERCHANTABILITY, SUITABILITY, FITNESS FOR
A PARTICULAR PURPOSE, OR QUALITY WITH RESPECT TO ANY OF THE ASSETS OF THE
ACQUIRED COMPANY, OR AS TO THE CONDITION OR WORKMANSHIP THEREOF OR THE ABSENCE
OF ANY DEFECTS THEREIN, WHETHER LATENT OR PATENT.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
SELLER
Seller represents and warrants to
Purchaser as of the date hereof as follows:
3.1
Organization
; Standing and Power. Seller (a) is duly organized, validly
existing and in good standing (to the extent such concept exists) under the laws
of the jurisdiction of its formation, (b) has the requisite company power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted, and (c) is duly qualified or licensed and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to be so
qualified or licensed or to be in good standing, individually or in the
aggregate, would not prevent or delay the Closing or prevent or delay or
materially impair the ability of Seller or the Acquired Company to satisfy the
conditions to the obligations of Purchaser hereunder or to timely consummate the
Share Purchase (a
Seller Material Adverse Effect
).
3.2
Authority and Due Execution
.
(a)
Authority
. Seller has all requisite power, authority and capacity to
enter into this Agreement and to consummate the transactions contemplated
hereby. Other than the receipt of the Seller Shareholder Approval. the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
action on the part of Seller and its board of directors (the
Seller
Board
), and no other proceedings on the part of Seller are necessary to
authorize the execution, delivery and performance of this Agreement and the
consummation of transactions contemplated hereby. The affirmative vote of (i)
sixty-six and two-thirds percent (662/3)% of the votes cast on the Transaction
Resolution by the Seller Shareholders present in person or by proxy at the
Special Meeting in connection with the consummation of the Share Purchase, and
(ii) a majority of the votes cast on the Transaction Resolution by all Minority
Shareholders present in person or by proxy at the Special Meeting is the only
vote of Seller Shareholders necessary in connection with the Contemplated
Transactions and is referred to herein as the
Seller Shareholder
Approval
.
(b)
Due Execution
. This Agreement has been duly executed and delivered by
Seller, and, assuming due execution and delivery by Purchaser, constitutes or
will constitute the legal, valid and binding obligation of Seller, enforceable
against Seller in accordance with its terms, except as may be limited by (i)
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws
from time to time in effect which affect creditors rights generally, or (ii)
legal and equitable limitations on the availability of specific remedies.
A-13
(c)
Fairness Opinion
. The Special Committee has received the Fairness Opinion
(a true and complete copy of which has been (or will be) made available to
Purchaser) and the Fairness Opinion has not been withdrawn or modified.
(d)
Special Committee Resolutions
. The Special Committee, after consulting
with its legal and financial advisors, has unanimously recommended that the
Seller Board approve the Share Purchase and that the Seller Shareholders vote in
favor of the Transaction Resolution.
(e)
Board Recommendation
. At a meeting duly called and held, the Seller
Board, upon the unanimous recommendation of the Special Committee and after
consulting with its legal and financial advisors, has unanimously (with
directors not entitled to vote abstaining from voting and recused) (i)
determined that the Share Purchase is fair to and in the best interests of
Seller and Seller Shareholders, and adopted and declared advisable the Share
Purchase and recommended that the Seller Shareholders vote in favor of the
Transaction Resolution (collectively, the
Seller Board Recommendation
),
and (ii) authorized the entering into of this Agreement and the performance by
Seller of its obligations under this Agreement, and no action has been taken to
amend, or supersede such determinations, resolutions, or authorizations.
3.3
Non-Contravention and
Consents
.
(a)
Non-Contravention
. The execution and delivery of this Agreement does not,
and the consummation of the Share Purchase and the performance of this Agreement
will not: (i) conflict with or violate any of Sellers formation documents, or
any resolution adopted by its shareholders, the Seller Board or any committee of
the Seller Board; (ii) conflict with or violate any applicable Legal Requirement
to which Seller is subject; or (iii) result in the creation of a Lien on any
Shares pursuant to any Contract to which Seller is a party or by which it is
bound.
(b)
Contractual Consents
. No consent under any Contract to which Seller is a
party or by which it is bound is required to be obtained, except where the
failure to obtain such consent would not reasonably be expected to be material
to the Acquired Company and its Subsidiaries, taken as a whole, and Seller is
not or will not be required to give any notice to any Person, in either case, in
connection with the execution, delivery or performance of this Agreement or the
consummation of the Share Purchase or any of the other transactions contemplated
hereby, except where the failure to provide such notice would not reasonably be
expected to be material to the Acquired Company and its Subsidiaries, taken as a
whole.
(c)
Governmental Consents
. No consent, approval, Order or authorization of,
or registration, declaration or filing with any Governmental Entity or listing
exchange is required to be obtained or made by Seller in connection with the
execution and delivery of this Agreement or the consummation of the Share
Purchase or any of the other transactions contemplated hereby.
3.4
Litigation
. As of the date hereof, there are no claims, suits, actions or
proceedings pending or, to the Knowledge of Seller, threatened in writing
against Seller, before any Governmental Entity that seeks to restrain or enjoin
the consummation of the transactions contemplated hereby or which would, either
singularly or in the aggregate with all such claims, actions or proceedings,
have a Seller Material Adverse Effect.
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3.5
Title and Ownership
. Seller is the sole record and beneficial owner of
all of the Shares. Seller has good, valid and marketable title to such Shares,
free and clear of all Liens. No other person has any right, title or interest in
or to any of the Shares. Seller is not a party to any option, warrant, purchase
right or other Contract that would reasonably be expected to require Seller to
sell, transfer or otherwise dispose of any Shares (other than this Agreement).
Seller is not a party to any voting trust, proxy or other agreement or
understanding with respect to the voting of any Shares. Except for the Shares,
Seller does not own any securities of the Acquired Company or any right to
acquire any securities of the Acquired Company.
3.6
Proxy Statement
. The proxy statement and management information circular,
or any amendment or supplement thereto, to be sent to Seller Shareholders in
connection with the Share Purchase and the other transactions contemplated by
this Agreement (the
Proxy Statement
) shall provides the Seller
Shareholders with sufficient information to permit them to form a reasoned
judgement concerning the matters to be placed before the Special Meeting and
shall not, on the date the Proxy Statement, and any amendments or supplements
thereto, is filed with the SEC and on SEDAR or is first mailed to the Seller
Shareholders or at the time of the Special Meeting, in any such case, contain
any Misrepresentation or untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Seller will cause
the Proxy Statement to comply in all materials respects with the requirements of
the 1934 Act and Canadian Securities Laws applicable thereto as of the date of
such filing. The representations and warranties contained in this
Section
3.6
shall not apply to statements or omissions included or incorporated by
reference in the Proxy Statement based upon information supplied by Purchaser or
any of its representatives specifically for use or incorporation by reference
therein.
3.7
No Other Representations or Warranties; Disclosure
. Except for the
representations and warranties of Seller expressly set forth in this Agreement,
neither Seller nor any other Person makes any other express or implied
representation or warranty on behalf of Seller, or otherwise, in each case in
respect of Seller, any of their respective assets and liabilities or otherwise.
EXCEPT AS SET FORTH IN
ARTICLE II
AND THIS
ARTICLE III
, SELLER
MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED (INCLUDING THOSE
REFERRED TO IN THE UNIFORM COMMERCIAL CODE OR IN ANY STATUTE OR RULE OF LAW THAT
CAN BE LIMITED OR WAIVED OR ANY REPRESENTATION OR WARRANTY THAT WOULD OTHERWISE
BE APPLICABLE TO REAL PROPERTY).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PURCHASER
Purchaser
represents and warrants to Seller and the Acquired Company as of the date
hereof, as follows:
4.1
Organization; Standing and Power
. Purchaser (a) is duly organized,
validly existing and in good standing (to the extent such concept exists) under
the laws of the jurisdiction of its formation, (b) has the requisite company
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted, and (c) is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed or to be in good standing, individually or in the
aggregate, would not prevent or delay the Closing or prevent or delay or
materially impair the ability of Purchaser to satisfy the conditions to the obligations of Seller hereunder or to
timely consummate the Share Purchase, including making the cash payment (a
Purchaser Material Adverse Effect
).
A-15
4.2
Authority
. Purchaser has all requisite company power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
company action on the part of Purchaser and no other company proceedings on the
part of Purchaser are necessary to authorize the execution and delivery of this
Agreement or to consummate the Share Purchase and the other transactions
contemplated hereby. This Agreement has been duly executed and delivered by
Purchaser and, assuming due execution and delivery by Seller, constitutes a
valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms, except as may be limited by (a) applicable
bankruptcy, insolvency, moratorium, reorganization or similar laws from time to
time in effect which affect creditors rights generally, or (b) legal and
equitable limitations on the availability of specific remedies.
4.3
Non-Contravention
.
(a)
The execution and delivery of this Agreement by Purchaser does not, and
performance of this Agreement by Purchaser (including all the transactions set
forth herein) will not: (i) conflict with or violate the Purchasers charter
documents, as amended to date; (ii) conflict with or violate any material Legal
Requirement applicable to Purchaser or by which Purchaser or any of its
properties is bound or affected; or (iii) result in any material breach of or
constitute a material default (or an event that with notice or lapse of time or
both would become a material default) under, or materially impair Purchasers
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, material amendment, acceleration or
cancellation of, or result in the creation of a material Lien on any of the
properties or assets of Purchaser pursuant to, any Contract to which Purchaser
is a party the termination or breach of which would have a Purchaser Material
Adverse Effect.
(b)
No consent, approval, Order or authorization of, or registration, declaration or
filing with any Governmental Entity or listing exchange is required to be
obtained or made by Purchaser in connection with the execution and delivery of
this Agreement or the consummation of the Share Purchase or any of the other
transactions contemplated hereby.
4.4
Litigation
. As of the date hereof, there are no claims, suits, actions or
proceedings pending or, to the Knowledge of Purchaser, threatened in writing
against Purchaser, before any Governmental Entity that seeks to restrain or
enjoin the consummation of the transactions contemplated hereby or which would,
either singularly or in the aggregate with all such claims, actions or
proceedings, have a Purchaser Material Adverse Effect.
4.5
Solvency
. Purchaser is, and at the Closing will be, able to (a)
pay its debts as they become due; (b) own property which has a fair saleable
value greater than the amounts required to pay its debts (including a reasonable
estimate of the amount of all contingent liabilities); and (c) carry on its
businesses with adequate capital. No transfer of property is being made and no
obligation is being incurred in connection with the transactions contemplated by
this Agreement with the intent to hinder, delay or defraud either present or
future creditors of the Acquired Company.
4.6
Independent Investigation
. In making the decision to enter into this
Agreement and to consummate the transactions contemplated hereby, other than
reliance on the representations, warranties, covenants
and obligations of the Acquired Company and Seller set forth in this Agreement,
Purchaser has relied solely on its own independent investigation, analysis and
evaluation of the Acquired Company and the Shares (including Purchasers own
estimate and appraisal of the value of the business, financial condition,
assets, operations and prospects of the Acquired Company). Purchaser confirms to
Seller that Purchaser is sophisticated and knowledgeable in both the industry
and the business of the Acquired Company and is capable of evaluating the
matters set forth above. For the avoidance of doubt, Purchaser acknowledges and
agrees that neither Seller nor its shareholders shall have any liability under
this Agreement with respect to any information concerning the Acquired Company
not expressly represented and warranted to in this Agreement, including, but
only to the extent not also expressly represented and warranted to in this
Agreement, (a) any information communicated by or made available through the
data room process, or (b) any financial projection or forecast relating to the
Acquired Company;
provided
, that the foregoing acknowledgement and
agreement contained in this
Section 4.6
shall not limit, in any way, the
representations and warranties made by the Acquired Company hereunder. Purchaser
agrees with the terms and provisions of
Section 2.20
.
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4.7
Proxy Statement
. The information supplied by Purchaser for inclusion in
the Proxy Statement shall not, on the date the Proxy Statement, and any
amendments or supplements thereto, is filed with the SEC or on SEDAR or is first
mailed to the Seller Shareholders or at the time of the Special Meeting, in any
such case, contain any Misrepresentation or untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE V
CONDUCT OF THE BUSINESS PRIOR TO THE
CLOSING
5.1
Conduct of Business by the Acquired Company.
(a)
Ordinary Course
. During the period from the date hereof and continuing
until the earlier of the termination of this Agreement pursuant to its terms or
the Closing, the Acquired Company shall (and Seller shall cause the Acquired
Company to), except as otherwise expressly contemplated by this Agreement or to
the extent that Purchaser shall otherwise consent in writing (which consent may
include electronic transmission, and which shall not be unreasonably withheld,
conditioned or delayed), (i) carry on its business in the usual, regular and
ordinary course, in substantially the same manner as heretofore conducted and in
material compliance with all applicable Legal Requirements, (ii) pay its Taxes
when due, and (iii) use commercially reasonable efforts to preserve intact the
present business organization of the Acquired Company.
(b)
Required Consent
. In addition, without limiting the generality of
Section 5.1(a)
, except as permitted or contemplated by the terms
of this Agreement, in connection with the Capital Raise or as provided in
Schedule 5.1(b)
of the Acquired Company Disclosure Letter, without the
prior written consent of Purchaser (which consent may include electronic
transmission, and which shall not be unreasonably withheld, conditioned or
delayed), during the period from the date hereof and continuing until the
earlier of the termination of this Agreement pursuant to its terms or the
Closing, the Acquired Company shall not (and Seller shall cause the Acquired
Company and its Subsidiaries to not) do any of the following (whether directly
or through any Subsidiary) after the date of this Agreement until the Closing:
(i) amend any Acquired Company Charter
Documents;
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(ii) adopt a plan of complete or
partial liquidation or dissolution;
(iii) declare, set aside or pay any
dividends on or make any other distributions (whether in cash, stock, equity
securities or property) in respect of its capital stock or share capital, as
applicable, or split, combine or reclassify its capital stock or share capital,
as applicable, or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for its capital stock or share
capital, as applicable, except for dividends or distributions of cash or cash
equivalents to Seller;
(iv)
purchase, redeem or otherwise acquire, directly or indirectly, any shares of its
capital stock or share capital, as applicable;
(v) issue, deliver, sell, authorize,
pledge or otherwise encumber any shares of its capital stock or share capital,
as applicable, or any securities convertible into shares of its capital stock or
share capital, as applicable, or subscriptions, rights, warrants or options to
acquire any shares of its capital stock or share capital, as applicable, or any
securities convertible into shares of its capital stock or share capital, as
applicable, or enter into other agreements or commitments of any character
obligating it to issue any such securities or rights;
(vi) acquire or agree to acquire, by
merging or consolidating with, or by purchasing any material equity or voting
interest in or a material portion of the assets of, or by any other manner, any
business or any Person or division thereof, or otherwise acquire or agree to
acquire any assets which are material to the Business;
(vii) sell,
lease, exclusively license, encumber or otherwise dispose of any properties or
assets material to the Business, except for licenses of products or services of
the Acquired Company in the ordinary course of business;
(viii) make any loans, advances or
capital contributions to, or investments in, any other Person, other than
employee loans or advances made in the ordinary course of business in accordance
with written policies of the Acquired Company, which policies have been
disclosed to Purchaser prior to execution and delivery of this Agreement;
(ix) except as required by
GAAP, make any material change in its methods or principles of accounting;
(x) except as
required by this Agreement, Legal Requirements or Contracts currently binding on
the Acquired Company and disclosed to Purchaser prior to the date of this
Agreement, hire or engage any Person
(xi) incur
any Indebtedness, or guarantee any such Indebtedness of another Person, issue or
sell any debt securities or options, warrants, calls or other rights to acquire
any debt securities of the Acquired Company; or
(xii) take any action that would cause
any of the changes, events or conditions described in
Section 2.6
(Absence of Certain Changes or Events) to occur.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1
Financing
.
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(a)
Prior to Closing, Seller shall cause the Acquired Company and its Subsidiaries
to provide, and shall use its commercially reasonable best efforts to cause
their respective Affiliates, officers, directors, employees, stockholders,
agents and representatives to provide, all cooperation reasonably requested by
Purchaser in connection with the arrangement of the Financing (
provided
,
that such requested cooperation does not unreasonably interfere with the ongoing
operations of Seller, the Acquired Company or any of their respective
subsidiaries), including (i) participating in a reasonable number of meetings,
presentations, road shows, due diligence sessions and sessions with rating
agencies, (ii) using commercially reasonable best efforts to facilitate the
pledging of collateral, (iii) provide reasonable assistance with the preparation
by Purchaser of customary materials for bank information memoranda and similar
customary marketing documents required to be delivered in connection with
arranging the Financing, and (iv) furnishing Purchaser and its financing sources
as promptly as reasonably practicable with such financial and other pertinent
information regarding the Acquired Company and its Subsidiaries as may be
reasonably requested by Purchaser, including using commercially reasonable
efforts to, to the extent requested by Purchaser, at least two (2) Business Days
prior to the Closing, provide customary and reasonably required "know-your
customer" information. The foregoing notwithstanding, (x) no person who is a
director of the Acquired Company or any its Subsidiaries at any time prior to
the Closing (a
Pre-Closing Director
) shall be required to take any
action with respect to the foregoing and neither the Acquired Company nor any of
its Subsidiaries shall be obligated to take any action that requires action or
approval by any Pre-Closing Director, (y) no obligation of the Acquired Company
or any of its Subsidiaries or any of their respective Affiliates, officers,
directors, employees, stockholders, agents and representatives undertaken
pursuant to the foregoing shall be effective until after the Closing, and (z)
none of the Acquired Company or any of its Subsidiaries or any of their
respective Affiliates, officers, directors, employees, stockholders, agents and
representatives shall be required to pay any commitment or other similar fee or
incur any other cost or expense that is not simultaneously reimbursed by
Purchaser in connection with the Financing prior to the Closing. Purchaser
shall, promptly upon request by Seller, reimburse Seller, the Acquired Company,
their respective subsidiaries and their respective Affiliates, officers,
directors, employees, stockholders, agents and representatives for all
reasonable and documented out-of-pocket costs incurred thereby in connection
with such cooperation and shall indemnify and hold harmless Seller, the Acquired
Company, their respective subsidiaries and their respective Affiliates,
officers, directors, employees, stockholders, agents and representatives for and
against any and all losses suffered or incurred by them in connection with the
arrangement of the Financing and any information utilized in connection
therewith, except in cases of fraud, gross negligence or willful misconduct by
Seller. All nonpublic or otherwise confidential information regarding Seller,
the Acquired Company, their respective subsidiaries and their respective
Affiliates obtained by Purchaser or its Affiliates, officers, directors,
employees, stockholders, agents and representatives pursuant to this
Section
6.1(a)
shall be kept confidential.
(b)
Purchaser shall use its, and shall cause its Affiliates to use their, best
efforts to arrange the Financing as promptly as practicable (but no later than
the earlier the Closing Date), including using best efforts to (i) negotiate and
finalize definitive agreements with respect thereto (the
Financing
Documents
), (ii) satisfy on a timely basis all conditions applicable to
Purchaser (or its Affiliates) in such Financing Documents, (iii) comply with its
and their obligations under any Financing Documents and consummate the Financing
no later than the Closing Date, and (iv) enforce its and their rights under the
Financing Documents. In the event that all conditions to the Financing Documents
have been satisfied in Purchasers good faith judgment, Purchaser shall use its
best efforts to cause the lenders and the other persons providing such Financing
to fund the Financing required to consummate the Share Purchase upon the terms
set forth herein on or prior to the Closing Date (including by taking
enforcement action to cause such lenders and other persons
providing such Financing to fund such Financing). Without limiting the
generality of the foregoing, Purchaser shall give Seller prompt written notice
(x) of any breach or default by any party to the Financing Documents or, after
the occurrence of the Contingency Termination Event, the Commitments of which
Purchaser becomes aware and (y) of the receipt by Purchaser of any notice or
other communication from any Financing source with respect to any (I) breach,
default, termination or repudiation by any party to the Financing Documents of
any provisions of the Financing Documents or, after the occurrence of the
Contingency Termination Event, to the Commitments of any provision of the
Commitments or (II) material dispute or disagreement between the parties to the
Financing Documents or, after the occurrence of the Contingency Termination
Event, the Commitments. As soon as reasonably practicable, but in any event
within two (2) days of the date Seller delivers Purchaser a written request
(which shall include a request by electronic mail), Purchaser shall provide any
information reasonably requested by Seller relating to any circumstance referred
to in clause (x) or (y) of the immediately preceding sentence and any
information relating to Purchasers negotiation, execution and performance of
the Financing Documents and the status of the Financing. In the event any
portion of the Financing becomes unavailable on the terms and conditions
contemplated in the Financing Documents or, after the occurrence of the
Contingency Termination Event, the Commitments, Purchaser shall promptly notify
Seller and shall use its best efforts to arrange to obtain alternative financing
from alternative sources on terms that will still enable Purchaser to consummate
the Share Purchase upon the terms set forth herein as promptly as practicable
following the occurrence of such event, but no later than the Closing Date.
Purchaser shall deliver to Seller true and complete copies of all agreements
pursuant to which any such alternative source shall have committed to provide
Purchaser with any portion of the Financing. Purchaser shall refrain (and shall
use its best efforts to cause its Affiliates to refrain) from taking, directly
or indirectly, any action that would reasonably be expected to result in a
failure of any of the conditions contained in the Financing Documents or in any
definitive agreement related to the Financing, or, after the occurrence of the
Contingency Termination Event, the Commitments. Purchaser shall not agree to or
permit any amendment, supplement or other modification of, or waive any of its
rights under, any Financing Documents or the definitive agreements relating to
the Financing, or, after the occurrence of the Contingency Termination Event,
the Commitments, without first obtaining Sellers prior written consent.
Purchaser shall keep Seller reasonably apprised of material developments
relating to the Financing..
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6.2
Confidentiality; Access to Information
.
(a)
Confidentiality
.
(i)
Purchaser shall, and shall cause its Affiliates and representatives to, keep
confidential and not use (except in connection with the transactions
contemplated by this Agreement) any information of or regarding the Acquired
Company or any of its Subsidiaries made available to Purchaser, its Affiliates
or its representatives until the earlier of (x) the Closing and (y) the date
that is two (2) years after the date hereof;
provided
, that such
confidential information shall not include any information that is or becomes
generally available to the public other than as a result of a breach of this
section by Purchaser, its Affiliates or its representatives; and provided
further that such confidential information may be disclosed (A) to Purchasers
employees, prospective investors, agents and advisors in connection with the
transactions contemplated hereby and the Financing who shall be informed of the
confidential and non-use nature of the information and that such information is
subject to this confidentiality and non-use restriction (and whose breaches of
this
Section 6.2(a)(i)
Purchaser shall be fully responsible for); (B) to
any person with the prior written consent of Seller; or (C) if Purchaser is
required to disclose such information pursuant to
applicable Legal Requirement, in which case reasonable prior notice will be
provided to Seller by Purchaser in advance of such disclosure, if permitted.
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(ii)
Purchaser shall, and shall cause its Affiliates and representatives to, keep
confidential and not use (except in connection with the transactions
contemplated by this Agreement) any information of or regarding Seller or any of
its subsidiaries (other than, from and after the Closing, the Acquired Company
and its Subsidiaries) made available to Purchaser, its Affiliates or its
representatives until the date that is two (2) years after the date hereof;
provided
, that such confidential information shall not include any
information that is or becomes generally available to the public other than as a
result of a breach of this section by Purchaser, its Affiliates or its
representatives; and provided further that such confidential information may be
disclosed (A) to Purchasers employees, prospective investors, agents and
advisors in connection with the transactions contemplated hereby and the
Financing who shall be informed of the confidential and non-use nature of the
information and that such information is subject to this confidentiality and
non-use restriction (and whose breaches of this
Section 6.2(a)(ii)
Purchaser shall be fully responsible for); (B) to any person with the prior
written consent of Seller; or (C) if Purchaser is required to disclose such
information pursuant to applicable Legal Requirement, in which case reasonable
prior notice will be provided to Seller by Purchaser in advance of such
disclosure, if permitted.
(iii)
Seller shall, and shall cause its Affiliates and representatives to, keep
confidential and not use (except in connection with the transactions
contemplated by this Agreement) any information of or regarding Purchaser or any
of its subsidiaries (including, from and after the Closing, Acquired Company and
its Subsidiaries) made available to Seller, its Affiliates or its
representatives until the date that is two (2) years after the date hereof;
provided
, that such confidential information shall not include any
information that is or becomes generally available to the public other than as a
result of a breach of this section by Seller, its Affiliates or its
representatives; and provided further that such confidential information may be
disclosed (A) to Sellers employees, agents and advisors in connection with the
transactions contemplated hereby who shall be informed of the confidential and
non-use nature of the information and that such information is subject to this
confidentiality and non-use restriction (and whose breaches of this
Section
6.2(a)(iii)
Seller shall be fully responsible for); (B) to any person with
the prior written consent of Purchaser; or (C) if Seller is required to disclose
such information pursuant to applicable Legal Requirement, in which case
reasonable prior notice will be provided to Purchaser by Seller in advance of
such disclosure, if permitted.
(b)
Access to Information
. Seller and the Acquired Company will afford
Purchaser and Purchasers accountants, counsel and other representatives
reasonable access during normal business hours and with reasonable notice to its
properties, books, records, Contracts, documents and personnel during the period
prior to the Closing;
provided
,
however
, that Seller or the
Acquired Company may restrict the foregoing access to the extent that (i) any
Legal Requirement of any Governmental Entity applicable to such party requires
Seller or the Acquired Company to restrict or prohibit access to any such
properties or information, or (ii) such access would be in breach of any
confidentiality obligation, commitment or provision by which Seller or the
Acquired Company is bound or affected, which confidentiality obligation,
commitment or provision shall be disclosed in general to Purchaser, so long as
such disclosure of such obligation, commitment or provision would not itself be
the breach of an obligation or commitment to a third party. In addition, any
information obtained from Seller or the Acquired Company pursuant to the access
contemplated by this
Section 6.2(b)
shall be subject to Section 6.1(a) .
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6.3
Public Disclosure
. Without limiting any other provision of this
Agreement, Purchaser and Seller will consult with each other before issuing, and
provide each other the opportunity to review, comment upon and concur with, and
agree on any press release or public statement with respect to this Agreement
and the transactions contemplated hereby, including the Share Purchase, and will
not issue any such press release or make any such public statement prior to such
consultation and agreement.
6.4
Regulatory Filings; Reasonable Efforts
.
(a)
Regulatory Filings
. Each of Purchaser, Seller and the Acquired Company
shall coordinate and cooperate with one another and shall each use reasonable
best efforts to comply with, and shall each refrain from taking any action that
would impede compliance with, all Legal Requirements in connection with the
Contemplated Transactions. Each of Purchaser, Seller and the Acquired Company
will cause all documents, if any, that it is responsible for filing with any
Governmental Entity under this
Section 6.4(a)
to comply in all material
respects with all applicable Legal Requirements. Purchaser shall pay all filing
fees and similar fees and expenses associated with any filing contemplated by
this
Section 6.4(a)
that is required to be filed by Purchaser with any
Governmental Entity.
(b)
Exchange of Information
. Purchaser, Seller and the Acquired Company shall
promptly supply the other with any information which may be required in order to
effectuate any filings or application pursuant to
Section 6.4(a)
. Except
where prohibited by applicable Legal Requirements, and subject to
Section
6.2
and any joint defense agreement entered into between the parties or
their counsel, each of Purchaser, Seller and the Acquired Company shall consult
with the other prior to taking a position with respect to any such filing, shall
permit the other to review and discuss in advance, and consider in good faith
the views of the other in connection with any analyses, appearances,
presentations, memoranda, briefs, white papers, arguments, opinions and
proposals before making or submitting any of the foregoing to any Governmental
Entity by or on behalf of any party hereto in connection with any investigations
or proceedings in connection with this Agreement or the transactions
contemplated hereby (including under any antitrust or fair trade Legal
Requirement), coordinate with the other in preparing and exchanging such
information and promptly provide the other (and its counsel) with copies of all
filings, presentations or submissions (and a summary of any oral presentations)
made by such party with any Governmental Entity in connection with this
Agreement or the transactions contemplated hereby,
provided
that with
respect to any such filing, presentation or submission, Purchaser, Seller and
the Acquired Company need not supply the other (or its counsel) with copies (or
in case of oral presentations, a summary) to the extent that (i) any Legal
Requirement of any Governmental Entity applicable to such party requires such
party or its subsidiaries to restrict or prohibit access to any such properties
or information, or (ii) such access would be in breach of any confidentiality
obligation, commitment or provision by which a party is bound or affected, which
confidentiality obligation, commitment or provision shall be disclosed in
general to the other parties, so long as such disclosure of such obligation,
commitment or provision would not itself be a breach of an obligation or
commitment to a third party.
(c)
Notification
. Purchaser, Seller and the Acquired Company will notify the
other promptly upon the receipt of: (i) any comments from any officials of any
Governmental Entity in connection with any filings made pursuant hereto and (ii)
any request by any officials of any Governmental Entity for amendments or
supplements to any filings made pursuant to, or information provided to comply
in all material respects with, any Legal Requirements. Whenever any event occurs
that is required to be set forth in an amendment or supplement to any filing
made pursuant to
Section 6.4(a)
, Purchaser, Seller and the Acquired
Company, as the case may be, will promptly inform the other of
such occurrence and cooperate in filing with the applicable Governmental Entity
such amendment or supplement.
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(d)
Commercially Reasonable Efforts
. Upon the terms and subject to the
conditions set forth herein, each of the parties agrees to use commercially
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Share Purchase and the other
transactions contemplated by this Agreement, including using commercially
reasonable efforts to accomplish the following: (i) the taking of all reasonable
acts necessary to cause the conditions precedent set forth in
Article VII
to be satisfied; (ii) the obtaining of all necessary actions or nonactions,
waivers, consents, approvals, Orders and authorizations from Governmental
Entities and the making of all necessary registrations, declarations and filings
(including registrations, declarations and filings with Governmental Entities,
if any) and the taking of all reasonable steps as may be necessary to avoid any
suit, claim, action, investigation or proceeding by any Governmental Entity;
(iii) the obtaining of all necessary consents, approvals or waivers from third
parties (
provided
, that the parties will discuss in good faith procedures
to pursue third party consents with respect to the Share Purchase) (it being
understood that failure to obtain any one or more such consents, in and of
itself, shall not constitute a failure by the Acquired Company to comply with
its covenants in this
Section 6.4(d)(iii)
nor, except as otherwise set
forth in
Article VII
, the failure of a condition to Closing
hereunder); (iv) the defending of any suits, claims, actions, investigations or
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby; and (v) the execution
or delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In connection with and without limiting the foregoing, Seller shall,
if any takeover statute or similar Legal Requirement is or becomes applicable to
the Share Purchase, this Agreement or any of the transactions contemplated by
this Agreement, use commercially reasonable efforts to ensure that the Share
Purchase and the other transactions contemplated by this Agreement may be
consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such Legal Requirement on the
Share Purchase, this Agreement and the transactions contemplated hereby.
6.5
No Control of Other Partys Business
. Subject to
Section 5.1
,
nothing contained in this Agreement shall give Purchaser, directly or
indirectly, the right to control or direct Sellers, the Acquired Companys or
their respective subsidiaries operations prior to the Closing. Prior to the
Closing, Seller and the Acquired Company shall exercise, consistent with the
terms and conditions of this Agreement, complete control and supervision over
its and their respective subsidiaries operations.
6.6
Transaction Litigation
. Seller shall control the defense of any
litigation brought by any Seller Shareholders against Seller and/or its
directors relating to the transactions contemplated by this Agreement, including
the Share Purchase.
6.7
No Impeding Actions
. Purchaser agrees that, from the date hereof to the
Closing, it shall not: (a) take any action that is intended to or would
reasonably be likely to result in any of the conditions to consummating the
Share Purchase and the other transactions contemplated under this Agreement
becoming incapable of being satisfied or (b) take any action or fail to take any
action which would be reasonably likely to, individually or in the aggregate,
prevent, materially delay or materially impede the ability of Purchaser to
consummate the Share Purchase or the other transactions contemplated under this
Agreement.
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6.8
FIRPTA Compliance
. On the
Closing Date, Seller shall deliver to Purchaser FIRPTA documentation, including
(a) a notice to the Internal Revenue Service, in accordance with the
requirements of Treasury Regulation Section 1.897 -2(h)(2), in substantially the
form attached hereto as
Exhibit A
, dated as of the Closing Date and
executed by the Acquired Company, together with written authorization for
Purchaser to deliver such notice form to the Internal Revenue Service on behalf
of the Acquired Company after the Closing and (b) a FIRPTA Notification Letter,
in substantially the form attached hereto as
Exhibit B
, dated as of the
Closing Date and executed by the Acquired Company.
6.9
Special Meeting; Proxy
Statement
.
(a)
Seller shall cause the Special Meeting to be duly called and held as soon as
reasonably practicable following the clearance of the Proxy Statement by the SEC
for the purpose of voting on the approval and adoption of this Agreement, the
Share Purchase and the other transactions contemplated hereby. Notwithstanding
the immediately preceding sentence, Seller may adjourn or postpone the Special
Meeting (i) after consultation with Purchaser, to the extent necessary to ensure
that any required supplement or amendment to the Proxy Statement is provided to
Sellers shareholders within a reasonable amount of time in advance of the
Special Meeting, (ii) as otherwise required by applicable Legal Requirements or
(iii) if as of the time for which the Special Meeting is scheduled as set forth
in the Proxy Statement, there are insufficient common shares of Seller
represented (in person or by proxy) to constitute a quorum necessary to conduct
the business of the Special Meeting. The Seller Board shall (x) recommend
approval and adoption of the Transaction Resolution in accordance with the
Seller Board Recommendation and rejection of any resolution inconsistent
therewith, (y) use its reasonable best efforts to obtain the Seller Shareholder
Approval and (z) otherwise comply with all legal requirements applicable to such
meeting.
(b)
As promptly as practicable following the date of this Agreement (and in any
event Seller shall use its reasonable best efforts to cause such filing to occur
no later than ten (10) Business Days after the date hereof), Seller shall
prepare and file the Proxy Statement in preliminary form with the SEC;
provided
that Seller shall provide Purchaser and its counsel a reasonable
opportunity to review Sellers proposed preliminary Proxy Statement in advance
of filing and consider in good faith any comments reasonably proposed by
Purchaser and its counsel. The Proxy Statement shall include the Seller Board
Recommendation, a copy of the Fairness Opinion and a statement to the effect
that each director and officer of Seller intends to vote such individuals
shares in favor of the Transaction Resolution. Seller shall use its reasonable
best efforts to cause the Proxy Statement to be cleared by the SEC as promptly
as practicable after its filing and to be mailed to the Seller Shareholders as
promptly as practicable following clearance of the Proxy Statement by the SEC,
and in any event within five (5) Business Days after such clearance. Purchaser
shall furnish to Seller all information concerning Purchaser and its Affiliates
as may be reasonably required by Seller in connection with the Proxy Statement.
Each of Seller and Purchaser shall promptly correct any information provided by
it for use in the Proxy Statement if and to the extent that such information
shall have become false or misleading in any material respect or shall
constitute a Misrepresentation, and Seller shall take all steps necessary to
amend or supplement the Proxy Statement and to cause the Proxy Statement, as so
amended or supplemented, to be filed with SEC and on SEDAR and mailed to the
Seller Shareholders, in each case as and to the extent required by applicable
Legal Requirements. Seller shall (i) as promptly as practicable after receipt
thereof, provide Purchaser and its counsel with copies of any written comments
or any requests for amendments or supplements, and advise Purchaser and its
counsel of any oral comments or requests, with respect to the Proxy Statement
(or any amendment or supplement thereto) received from the SEC or its staff or
any other applicable securities regulatory
authority or its staff, (ii) provide Purchaser and its counsel a reasonable
opportunity to review Purchasers proposed response to such comments and (iii)
consider in good faith any comments reasonably proposed by Purchaser and its
counsel.
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6.10
Assistance
. Purchaser and Seller agree to use reasonable efforts to
cause their Affiliates, officers, employees, internal accountants and auditors
to consult with each other in connection with the preparation of any financial
statements of Seller required by applicable Legal Requirements. Purchaser shall
use its reasonable efforts to, and shall use its reasonable efforts to cause its
Affiliates and their respective officers, employees, internal accountants and
its auditors to, support Seller as is reasonably necessary to enable Seller to
prepare any financial statements that are required to be filed with the
Securities Exchange Commission or pursuant to Canadian Securities Laws relating
to periods ending on or prior to December 31, 2018 (collectively, the
Financials
) in compliance with Regulation S-X promulgated under the
1934 Act, applicable Canadian Securities Laws and GAAP. Purchaser shall use its
reasonable efforts to cause its and its Affiliates internal accountants and its
auditors to discuss with Sellers internal accountants, its auditors and legal
advisors, such information, records and financial statements in order to help to
facilitate Sellers preparation of the Financials. Purchaser hereby consents to
the use and disclosure of all information contained, or to be contained, in the
Financials and all other financial or other information regarding the Acquired
Company in any report, registration statement or other filing required to be
filed under the 1933 Act, the 1934 Act or applicable Canadian Securities Laws.
The use or disclosure of such information for any other purpose shall be subject
to Purchasers prior written consent, which consent shall not be unreasonably
withheld by Purchaser. Purchaser also hereby agrees that it will provide and
will not unreasonably withhold or delay the issuance of those representation
letters as required under U.S. generally accepted auditing or other standards in
connection with the issuance by Sellers auditors of the Financials or as may be
necessary in connection with the filing of any document with the SEC under the
1933 Act, the 1934 Act or applicable Canadian Securities Laws.
6.11
Acquisition Proposals
. From and after the occurrence of the
Contingency Termination Event (if ever) and until the earlier of the termination
of this Agreement in accordance with its terms and the Closing:
(a) Subject to
Sections
6.11(c)
,
6.11(d)
and
6.11(f)
, (i) neither Seller nor any of
its subsidiaries shall, nor shall Seller or any of its subsidiaries authorize or
knowingly permit any of the directors of Seller, the senior executive officers
of Seller, or any investment bankers, attorneys, accountants or other advisors
retained by Seller or its subsidiaries (collectively,
Seller
Representatives
) to, directly or indirectly, (A) solicit, initiate or
knowingly facilitate or encourage the submission of any Acquisition Proposal,
(B) enter into or participate in any discussions or negotiations with, or
furnish any non-public information or access relating to Seller or any of its
subsidiaries to, any Third Party with respect to an Acquisition Proposal or any
inquiry or proposal that could reasonably be expected to lead to an Acquisition
Proposal or (C) enter into any agreement in principle, letter of intent, merger
agreement, acquisition agreement or other similar agreement relating to an
Acquisition Proposal and (ii) except as otherwise provided in this
Section
6.11
, the Seller Board shall not fail to make, and shall not withdraw,
withhold, qualify or modify, or resolve to or publicly propose to withdraw,
withhold, qualify or modify in a manner adverse to Purchaser, the Seller Board
Recommendation, or approve, endorse or recommend, or publicly propose to
approve, endorse or recommend, an Acquisition Proposal (any of the foregoing in
this clause (ii), an
Adverse Recommendation Change
);
provided
,
that, for the avoidance of doubt, neither (1) the determination by the Seller
Board in accordance with this
Section 6.11
that an Acquisition Proposal
constitutes a Superior Proposal nor (2) the delivery by Seller of the notice
required by
Section 6.11(f)
shall, in and of itself, constitute an
Adverse Recommendation Change.
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(b)
Seller shall immediately upon the Contingency Termination Event cease any
discussions or negotiations with any person with respect to an Acquisition
Proposal or any inquiry or proposal that could reasonably be expected to lead to
an Acquisition Proposal, and, in connection with such cessation, Seller shall
discontinue access to and disclosure of all information (including any
confidential information), properties, facilities and books and records with
respect to Seller and its subsidiaries.
(c)
Notwithstanding
Section 6.11(a)
and
Section 6.11(b)
, if at any time after
the Contingency Termination Event, but prior to the receipt of the Seller
Shareholder Approval, Seller or any of the Seller Representatives has received
an unsolicited written, bona fide Acquisition Proposal from any Third Party that
did not result from a material breach of this
Section 6.11
and that the
Seller Board determines in good faith, would reasonably be expected to result in
a Superior Proposal, then Seller, directly or indirectly through the Seller
Representatives, may on the terms provided in this
Section 6.11
(i)
engage in negotiations or discussions with such Third Party and its
representatives related to such written Acquisition Proposal and (ii) furnish to
such Third Party or its representatives non-public information and access
relating to Seller or any of its Subsidiaries pursuant to a confidentiality
agreement;
provided
, that, prior to or substantially concurrently with
the time it is made available to such Third Party, Seller shall make available
to Purchaser any material non-public information relating to Seller or its
subsidiaries that is made available to such Third Party and that was not
previously made available to Purchaser.
(d)
In addition, nothing contained herein shall prevent the Seller Board from (i)
complying with Rule 14e-2(a), Rule 14d-9 or Item 1012(a) of Regulation M-A
promulgated under the 1934 Act with regard to an Acquisition Proposal; or (ii)
making any disclosure to the Seller Shareholders if the Seller Board determines
in good faith that the failure to take such action would be reasonably likely to
result in a breach of its fiduciary duties under applicable Legal Requirements)
provided
, that in the case of the foregoing clauses (i) or (ii), any such
action taken or statement made that contains an Adverse Recommendation Change
shall be subject to the provisions of this
Section 6.11
.
(e)
Seller shall (i) notify Purchaser orally and in writing promptly (but in no
event later than forty-eight (48) hours) after receipt by Seller of any inquiry,
proposal or offer that constitutes or would reasonably be expected to constitute
or lead to an Acquisition Proposal, which notice shall identify the Third Party
making, and the material terms and conditions of, any such inquiry, proposal or
offer and (ii) keep Purchaser reasonably informed promptly (but in no event
later than forty-eight (48) hours) after any material developments, discussions
or negotiations regarding any such inquiry, proposal or offer and shall provide
to Purchaser promptly (but in no event later than forty-eight (48) hours) after
receipt thereof of copies of all proposed transaction agreements or proposal
letters or similar materials (and any attachments, annexes, exhibits, schedules
and other similar materials in connection therewith) sent or provided to Seller
or any of its subsidiaries that describe any material terms or conditions of any
Acquisition Proposal.
(f)
Notwithstanding anything contained in this Agreement to the contrary, at any
time after the Contingency Termination Event, but prior to receipt of the Seller
Shareholder Approval, if the Seller Board determines in good faith, in response
to an unsolicited, written, bona fide Acquisition Proposal that did not result
from a material breach of this
Section 6.11
, that (i) such Acquisition
Proposal constitutes a Superior Proposal and (ii) the failure to take such action would be reasonably likely to
result in a breach of its fiduciary duties under applicable Legal Requirements,
then the Seller Board may make an Adverse Recommendation Change or cause Seller
to terminate this Agreement pursuant to
Section 8.1(g)
(
provided
,
that, substantially concurrently with such termination Seller enters into a
definitive agreement with respect to such Superior Proposal (a
Seller
Acquisition Agreement
));
provided
, that, prior to taking any such
action Seller has complied in all material respects with this
Section
6.11(f)
. Further, the Seller Board shall not make an Adverse Recommendation
Change (or terminate this Agreement pursuant to
Section 8.1(g))
pursuant
to this
Section 6.11(f)
in response to an Acquisition Proposal, unless
(x) Seller promptly notifies Purchaser in writing, at least five (5) Business
Days before taking such action, of the determination of the Seller Board that
such Acquisition Proposal constitutes a Superior Proposal and of its intention
to take such action, attaching the most current version of the proposed
agreement under which such Superior Proposal is proposed to be consummated and
the identity of the Third Party making such Superior Proposal (it being
understood that each time any material revision or material amendment to the
terms of the Acquisition Proposal determined to be a Superior Proposal is made,
the initial three (3) Business Day period shall be extended for an additional
two (2) Business Days after notification of such material revision or material
amendment in accordance with
Section 6.11(e)
and this
Section 6.11(f)
to Purchaser) and (y) the Seller Board (A) shall have considered
in good faith and discussed with Purchaser (if Purchaser desires to discuss) any
adjustments or modifications to this Agreement proposed by Purchaser and (B)
shall have determined in good faith, at the end of the period set forth in
clause (x), that such Acquisition Proposal would continue to constitute a
Superior Proposal if any adjustments or modifications to the terms of this
Agreement proposed in writing by Purchaser were to be given effect.
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6.12
Financial Statements
. Reasonably promptly after the date hereof,
Seller shall prepare and deliver to Purchaser an unaudited balance sheet,
statement of income and statement of cash flows as of December 31, 2017 of the
Acquired Company and its Subsidiaries (exclusive of the Merged Business and the
SNAP Business) on a consolidated basis, which present fairly, in all material
respects, the consolidated financial position of the Acquired Company and its
Subsidiaries (exclusive of the Merged Business and the SNAP Business) as of the
dates shown and its consolidated results of operations and cash flows for the
periods shown; provided, however, that Seller makes no representations or
warranties regarding such financial statements being in compliance with
GAAP.
6.13
Intercompany Transactions
. Notwithstanding anything in this
Agreement to the contrary, prior to the Closing, Seller, the Acquired Company
and their respective subsidiaries shall be permitted to terminate, modify,
forgive, satisfy or take such other action that is deemed necessary or
appropriate in connection with the Share Purchase with respect to any Contract,
liability, Indebtedness or other obligations by and between Seller or any of its
subsidiaries, on the one hand, and the Acquired Company or any of its
Subsidiaries, on the other hand.
ARTICLE VII
CONDITIONS TO THE CONTEMPLATED
TRANSACTIONS
7.1
Conditions to the Obligations of Each Party to Effect the Contemplated Transactions
. The respective obligations of each party to this Agreement
to consummate and effect the Contemplated Transactions, including the Share
Purchase, shall be subject to the satisfaction at or prior to the Closing Date
of the following conditions:
(a)
No Order
. No Governmental
Entity of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree, injunction or other Order which
(i) is in effect and (ii) has the effect of making any of the Contemplated
Transactions illegal.
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(b)
Asset Transfer
. The Asset
Transfer shall have been consummated.
(c)
Shareholder Approval
. The Seller Shareholder Approval shall have been
obtained in accordance with applicable Legal Requirements.
7.2
Additional Conditions to the Obligations of Seller
. The obligation of
Seller to consummate and effect the Contemplated Transactions, including the
Share Purchase, shall be subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Seller, acting in its sole discretion:
(a)
Representations and Warranties
. (i) The representations and warranties of
Purchaser (other than
Section 4.1
,
Section 4.2
and
Section
4.5
) set forth herein that are qualified by a Purchaser Material Adverse
Effect shall be true and correct as so qualified at and as of the Closing Date
as if made at and as of such time (except to the extent any such representation
or warranty expressly related to an earlier date, in which case as of such
date), (ii) the representations and warranties of Purchaser (other than
Section 4.1
,
Section 4.2
and
Section
4.5
) set forth
herein that are not qualified by a Purchaser Material Adverse Effect shall be
true and correct at and as of the Closing Date as if made at and as of such time
(except to the extent any such representation or warranty expressly relates to
an earlier date, in which case as of such date) except where the failure of such
representations to be true and correct, individually or in the aggregate, would
not reasonably be expected to result in a Purchaser Material Adverse Effect, and
(iii) the representations and warranties of Purchaser set forth in
Section
4.1
,
Section 4.2
and
Section 4.5
shall be true and correct in
all material respects at and as of the Closing Date as if made at and as of such
time (except to the extent any such representation or warranty expressly relates
to an earlier date, in which case as of such date).
(b)
Agreements and Covenants
. Purchaser shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the Closing
Date.
(c)
Government Litigation
. There shall be no claim, suit, action or
proceeding pending against Purchaser, Seller or the Acquired Company by any
Governmental Entity seeking the result set forth in
Section 7.1(a)
.
7.3
Additional Conditions to the Obligations of Purchaser
. The obligations of
Purchaser to consummate and effect the Contemplated Transactions, including the
Share Purchase, shall be subject to the satisfaction at or prior to the Closing
Date of each of the following conditions, any of which may be waived, in
writing, exclusively by Purchaser, acting in its sole discretion:
(a)
Representations and
Warranties
. (i) The representations and warranties of Seller and the
Acquired Company (other than
Section 2.1(a)
(first sentence),
Section
2.2
,
Section 2.3
,
Section 3.1
,
Section 3.2
and
Section 3.5
) set forth herein that are qualified by a Material Adverse
Effect shall be true and correct as so qualified at and as of the Closing Date
as if made at and as of such time (except to the extent any such representation
or warranty expressly related to an earlier date, in which case as of such
date), (ii) the representations and warranties of Seller and the Acquired
Company (other than
Section 2.1(a)
(first sentence),
Section 2.2
,
Section 2.3
,
Section 3.1
,
Section 3.2
and
Section
3.5
) set forth herein that are not qualified by a Material Adverse
Effect shall be true and correct at and as of the Closing Date as if made at
and as of such time (except to the extent any such representation or warranty
expressly relates to an earlier date, in which case as of such date),
disregarding for these purposes any references to material or similar
materiality qualifiers therein, except where the failure of such representations
and warranties to be true and correct, individually or in the aggregate, would
not have or reasonably be expected to result in a Material Adverse Effect on the
Acquired Company, (iii) the representations and warranties of Seller and the
Acquired Company set forth in
Section
2.1(a)
(first sentence),
Section 2.3
,
Section 3.1
and
Section 3.2
shall be true and
correct in all material respects at and as of the Closing Date as if made at and
as of such time (except to the extent any such representation or warranty
expressly related to an earlier date, in which case as of such date) and (iv)
the representations and warranties of Seller and the Acquired Company set forth
in
Section 2.2
and
Section 3.5
shall be true and correct at and as
of the Closing Date as if made at and as of such time (except to the extent any
such representation or warranty expressly related to an earlier date, in which
case as of such date) except for inaccuracies that individually or in the
aggregate are
de minimis
.
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(b)
Agreements and Covenants
. Seller and the Acquired Company shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them at or prior
to the Closing Date, and Purchaser shall have received a certificate to such
effect signed on behalf of the Acquired Company by an authorized officer of
Seller.
(c)
Government Litigation
. There shall be no claim, suit, action or
proceeding pending against Purchaser, Seller or the Acquired Company by any
Governmental Entity seeking the result set forth in
Section 7.1(a)
.
(d)
No Material Adverse Effect
. There shall have been no Material Adverse
Effect that has occurred since the date hereof.
(e)
Share Certificates
. At the Closing, Seller shall deliver to Purchaser
certificates representing all of the Shares (if and to the extent certificated),
accompanied by share transfer instruments duly executed.
(f)
Financing
. The Financing shall have been consummated.
7.4
Frustration of Closing Conditions. Neither Purchaser, on the one hand, nor the
Seller and the Acquired Company, on the other hand, may rely on the failure of
any condition set forth in this
Article VII
to be satisfied if such
failure was caused by the failure of Purchaser or its Affiliates, on the one
hand, or Seller, the Acquired Company or their respective Affiliates, on the
other hand, to perform any of its obligations under this Agreement, to act in
good faith or to use its reasonable best efforts to consummate the Share
Purchase and the other transactions contemplated by this Agreement, as required
by and subject to
Section 6.4
.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1
Termination
. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written consent of
Purchaser and Seller;
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(b)
by either Seller or Purchaser, if the Share Purchase shall not have been
consummated by the date that is one hundred eighty days (180) days from the date
hereof (the
End Date
);
provided
,
however
, that the right
to terminate this Agreement under this
Section 8.1(b)
shall not be
available to any party whose action or failure to act has been a principal cause
of or resulted in the failure of the Share Purchase to occur on or before such
date and such action or failure to act constitutes a breach of this Agreement;
(c)
by either Seller or Purchaser, if a Governmental Entity shall have issued an
Order, decree or ruling or taken any other action (including the failure to have
taken an action), in any case having the effect of permanently restraining,
enjoining or otherwise prohibiting the Share Purchase, which Order, decree,
ruling or other action is final and nonappealable;
(d)
by Seller, upon a breach of any representation, warranty, covenant or agreement
on the part of Purchaser set forth in this Agreement, or if any representation
or warranty of Purchaser shall have become untrue, in either case such that the
conditions set forth in
Section 7.2(a)
or
Section 7.2(b)
would not
be satisfied as of the time of such breach or as of the time such representation
or warranty shall have become untrue,
provided
that, if such inaccuracy
in Purchasers representations and warranties or breach by Purchaser is curable
by Purchaser prior to the End Date through the exercise of reasonable efforts,
then Seller may not terminate this Agreement under this
Section 8.1(d)
prior to thirty (30) days following the receipt of written notice from Seller to
Purchaser of such breach (it being understood that Seller may not terminate this
Agreement pursuant to this
Section 8.1(d)
if it shall have materially
breached this Agreement or if such breach by Purchaser is cured so that such
conditions would then be satisfied);
(e)
by Purchaser, upon a breach of any representation, warranty, covenant or
agreement on the part of the Acquired Company or Seller set forth in this
Agreement, or if any representation or warranty of the Acquired Company or
Seller shall have become untrue, in either case such that the conditions set
forth in
Section 7.3(a)
or
Section 7.3(b)
would not be satisfied
as of the time of such breach or as of the time such representation or warranty
shall have become untrue,
provided
that, if such inaccuracy in the
Acquired Companys or Sellers representations and warranties or breach by the
Acquired Company or Seller is curable by the Acquired Company or Seller prior to
the End Date through the exercise of reasonable efforts, then Purchaser may not
terminate this Agreement under this
Section 8.1(e)
prior to thirty (30)
days following the receipt of written notice from Purchaser to Seller of such
breach (it being understood that Purchaser may not terminate this Agreement
pursuant to this
Section 8.1(e)
if it shall have materially breached this
Agreement or if such breach by the Acquired Company or Seller is cured so that
such conditions would then be satisfied);
(f)
prior to the Contingency Termination Event, by Seller for any reason or for no
reason.
(g)
after the occurrence of the Contingency Termination Event, by Seller if prior to
receipt of the Seller Shareholder Approval and substantially concurrently with
such termination, Seller enters into a Seller Acquisition Agreement in
accordance with
Section 6.11(f)
;
(h) after the occurrence of the
Contingency Termination Event, by Purchaser if the Seller Board has effected an
Adverse Recommendation Change; or
(i) after the occurrence of the Contingency
Termination Event, by Seller if (i) the conditions set forth in
Section
7.3
(other than the conditions that by their terms are to be satisfied or waived at the Closing)
have been satisfied or waived, (ii) Seller has confirmed by written notice to
Purchaser that all conditions set forth in
Section 7.2
(other than the
conditions that by their terms are to be satisfied or waived at the Closing)
have been satisfied or that it is willing to waive any such unsatisfied
conditions in
Section 7.2
and (iii) the Share Purchase and the other
transactions contemplated by this Agreement shall not have been consummated upon
the terms set forth herein within two (2) Business Days after the delivery of
such notice.
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8.2
Notice of Termination; Effect of Termination
. Any termination of this
Agreement under
Section 8.1
above will be effective immediately upon the
delivery of a valid written notice of the terminating party to the other party
hereto or upon the receipt of both consents in the event of a termination
pursuant to
Section 8.1(a)
; provided, that with respect to any
termination of this Agreement under
Section 8.1(f)
, such termination will
be effective on the date that is three (3) days following delivery of a valid
written notice of Seller to Purchaser unless such notice is revoked by Seller in
writing prior to such third day. In the event of the termination of this
Agreement as provided in
Section 8.1
, this Agreement shall be of no
further force or effect, except (a) as set forth in
Section 6.2(a)
, this
Section 8.2
,
Section 8.3
,
Section 8.5
and
Article X
,
each of which shall survive the termination of this Agreement and (b) nothing
herein shall relieve any party from liability for any willful breach of any
material covenant of this Agreement.
8.3
Amendment
. Subject to applicable Legal Requirements, the parties hereto
may cause this Agreement to be amended at any time by execution of an instrument
in writing signed on behalf of each of Purchaser and Seller.
8.4
Extension; Waiver
. At any time prior to the Closing, Seller may, to the
extent legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of Purchaser, (b) waive any inaccuracies in the
representations and warranties made by Purchaser to it contained herein or in
any document delivered pursuant hereto, and (c) waive compliance with any of the
agreements or conditions for Sellers benefit contained herein. At any time
prior to the Closing, Purchaser may, to the extent legally allowed, (x) extend
the time for the performance of any of the obligations or other acts of Seller
or the Acquired Company, (y) waive any inaccuracies in the representations and
warranties made by Seller or the Acquired Company to it contained herein or in
any document delivered pursuant hereto, and (z) waive compliance with any of the
agreements or conditions for the benefit of Purchaser contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. Delay in exercising any right under this Agreement shall not constitute a
waiver of such right.
8.5
Expense Reimbursement
.
(a)
If this Agreement is terminated by Seller pursuant to
Section 8.1(f)
(and
not pursuant to any other termination rights set forth in
Section 8.1
),
then Seller shall pay the Expense Reimbursement to Purchaser in immediately
available funds within two (2) Business Days of Sellers receipt from Purchaser
of the amount of the Expense Reimbursement.
(b)
In no event shall Seller be required to pay the Expense Reimbursement on more
than one occasion. Purchaser agrees that, upon any termination of this Agreement
under circumstances where the Expense Reimbursement is payable by Seller
pursuant to this Section and such Expense Reimbursement is paid in full,
Purchaser shall be precluded from any other remedy against Seller or the
Acquired Company, at law or in equity or otherwise, and Purchaser shall not seek
to obtain any recovery, judgment, or damages of any kind, including
consequential, indirect, or punitive damages, against
Seller, the Acquired Company or any of their respective subsidiaries or any of
their respective directors, officers, employees, partners, managers, members,
shareholders or Affiliates or their respective representatives in connection
with this Agreement or the transactions contemplated hereby. If Seller is
obligated to, and does pay, the Termination Fee pursuant to
Section 8.6
,
in no event shall Seller ever have to pay the Expense Reimbursement.
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8.6
Termination Fees
.
(a)
If this Agreement is terminated by Purchaser pursuant to
Section 8.1(h)
,
then Seller shall pay an amount equal to the lesser of (i) $1,000,000 and (ii)
the aggregate of the amount of Purchasers reasonable and documented
out-of-pocket fees and expenses relating to the evaluation, negotiation and
execution of this Agreement and the amount that Purchaser is obligated to pay or
reimburse to the Financing Sources pursuant to the Commitments (the
Termination Fee
) to Purchaser in immediately available funds within two
(2) Business Days after such termination.
(b)
If this Agreement is terminated by Seller pursuant to
Section 8.1(g)
,
then Seller shall pay the Termination Fee to Purchaser in immediately available
funds substantially concurrently with such termination.
(c)
If (i) after the date of this Agreement, an Acquisition Proposal shall have been
publicly made or announced (and such Acquisition Proposal is not withdrawn on or
prior to the date that is two (2) Business Days prior to the date of the Special
Meeting), (ii) thereafter, this Agreement is terminated by Purchaser or Seller
pursuant to
Section 8.1(b)
or by Purchaser pursuant to
Section
8.1(e)
and (iii) concurrently with or up to the date that is six (6) months
after such termination, Seller enters into a definitive agreement with respect
to such Acquisition Proposal which is thereafter consummated, then Seller shall
pay to Purchaser the Termination Fee by wire transfer of same-day funds
substantially concurrently with the consummation of such Acquisition
Proposal.
(d)
In no event shall Seller be required to pay the Termination Fee on more than one
occasion. Purchaser agrees that, upon any termination of this Agreement under
circumstances where the Termination Fee is payable by Seller pursuant to this
Section and such Termination Fee is paid in full, Purchaser shall be precluded
from any other remedy against Seller or the Acquired Company, at law or in
equity or otherwise, and Purchaser shall not seek to obtain any recovery,
judgment, or damages of any kind, including consequential, indirect, or punitive
damages, against Seller, the Acquired Company or any of their respective
subsidiaries or any of their respective directors, officers, employees,
partners, managers, members, shareholders or Affiliates or their respective
representatives in connection with this Agreement or the transactions
contemplated hereby. If Seller is obligated to, and does pay, the Expense
Reimbursement pursuant to
Section 8.5
, in no event shall Seller ever have
to pay the Termination Fee.
ARTICLE IX
INDEMNIFICATION
9.1
Indemnification by Seller
. Subject to the terms of this
Article
IX
, Seller will indemnify, defend and hold Purchaser and its Affiliates
(including, after the Closing, the Acquired Company and its Subsidiaries) and
each of their respective officers, directors, shareholders, managers, members,
employees, agents, successors and assigns (each a
Purchaser Indemnified
Party
and, collectively, the
Purchaser Indemnified Parties
)
harmless against and in respect of any and all Losses,
which such Purchaser Indemnified Party has suffered or incurred arising out of
(a) any breach or inaccuracy of any representation or warranty made by Seller or
the Acquired Company in this Agreement;
provided
,
however
, for
purposes of this
Section 9.1(a)
, in determining the amount of any Losses
with respect to any breach or inaccuracy of a representation or warranty by
Seller or the Acquired Company such representations and warranties will be read
without regard to any materiality or knowledge qualifier (including, without
limitation, any reference to material, in all material respects or Material
Adverse Effect) contained therein, but that such representations and warranties
shall be read with regard to materiality and knowledge qualifiers (including,
without limitation, any reference to material, in all material respects and
Material Adverse Effect) in determining whether there has been a breach or
inaccuracy of any such representations or warranties or (b) any breach or
non-fulfillment of any covenant, agreement or obligation of the Acquired Company
(at or prior to the Closing) or Seller under this Agreement.
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9.2
Survival
. The representations and warranties contained in or made
pursuant to this Agreement will survive the Closing and will expire on the
twelve (12) month anniversary of the Closing Date. The covenants, agreements and
obligations of the parties set forth in this Agreement to be performed after the
Closing shall survive the Closing until such covenants are performed. A claim
may be asserted against Seller for breach of a representation, warranty,
agreement or covenant, if written notice of such claim describing in reasonable
detail the facts and circumstances of the subject matter of such claim is
received by Seller within the survival time period applicable to such claim set
forth in this
Section 9.2
, and any such timely claim will survive until
such claim is finally and fully resolved.
9.3
Claims
.
(a)
Inter-Party Claims
. With respect to any indemnification sought pursuant
to this
Article IX
by a Purchaser Indemnified Party that does not involve
a Third Party Claim (a
Direct Claim
), the Purchaser Indemnified Party
shall provide written notice thereof to Seller (an
Indemnity Notice
)
within five (5) days of becoming aware of such Direct Claim. The Indemnity
Notice shall describe in reasonable detail (based on information then available
to the Purchaser Indemnified Party) the nature of the Direct Claim, the
Purchaser Indemnified Partys reasonable estimate of the amount of Losses
attributable to such claim and the basis of the Purchaser Indemnified Partys
request for indemnification under this
Article IX
. If Seller notifies the
Purchaser Indemnified Party within fifteen (15) days from its receipt of the
Indemnity Notice that Seller disputes such Direct Claim (the
Dispute
Notice
), such Direct Claim shall be resolved as provided in
Section
10.7
. If Seller does not timely deliver a Dispute Notice with respect to an
Indemnity Notice, or delivers a Dispute Notice that does not object to all of
the Losses set forth in the Indemnity Notice, Seller shall be deemed to have
accepted and agreed with all or such unobjected-to portion of the Direct Claim
and shall be conclusively deemed to have consented to the recovery by the
Purchaser Indemnified Party of all or such unobjected-to portion of the Losses
specified in the Indemnity Notice, and the Purchaser Indemnified Party (or any
designee thereof) shall be paid all or such unobjected-to portion of the claim
in accordance with
Section 9.5
.
(b)
Third Party Claims
.
(i)
A Purchaser Indemnified Party claiming indemnification under this
Article
IX
against Seller with respect to any claims asserted against it by a
third-party (
Third Party Claim
) that would reasonably be expected to
give rise to a right of indemnification under this
Article IX
shall
notify Seller in writing of such Third Party Claim, together with a copy of all papers
served with respect to such claim (if any) (a
Claim Notice
), within
five (5) days of becoming aware of such Third Party Claim. If Seller gives
notice (the
Notice of Assumption
) to the Purchaser Indemnified Party,
within fifteen (15) days after the Purchaser Indemnified Party has delivered the
Claim Notice, that Seller elects to assume the defense of the Third Party Claim
(at Sellers own cost and expense) and will indemnify the Purchaser Indemnified
Party against such Third Party Claim, then Seller shall have the right to defend
such Third Party Claim with counsel selected by Seller and who is reasonably
acceptable to the Purchaser Indemnified Party, by all appropriate proceedings,
which proceedings shall be prosecuted reasonably diligently by Seller to a final
conclusion or settled in accordance with this
Section 9.3(b)
. If Seller
does not give such timely Notice of Assumption to the Purchaser Indemnified
Party or if Seller will not assume the defense or agree to indemnify the
Purchaser Indemnified Parties, the Purchaser Indemnified Parties will control
the defense at the cost and expense of Seller, to the extent such Third Party
Claim is indemnifiable hereunder. Seller shall have full control of such defense
and proceedings, including any compromise or settlement thereof;
provided
that Seller shall not consent to the entry of a judgment or enter into any
settlement without the prior written consent of the Purchaser Indemnified Party
and a full general release for such Purchaser Indemnified Party. The Purchaser
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by Seller pursuant to this
Section
9.3(b)
, and the Purchaser Indemnified Party shall bear its own costs and
expenses with respect to such participation;
provided
that if the
Purchaser Indemnified Party has reasonably concluded that there is a conflict of
interest between Seller and the Purchaser Indemnified Party, Seller shall bear
the reasonable costs and expenses of one counsel to the Purchaser Indemnified
Party in connection with such defense. The Purchaser Indemnified Parties and
Seller shall reasonably cooperate with each other in contesting any Third Party
Claim.
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(ii)
Notwithstanding anything to the contrary contained in this Agreement, a
Purchaser Indemnified Party shall have the right to control the defense,
compromise and settlement of any Third Party Claim at the expense of Seller if
(A) the claim involves criminal charges or seeks an injunction or other
equitable relief against a Purchaser Indemnified Party or (B) Seller fails to
give the Notice of Assumption (with the appropriate election) within fifteen
(15) days after receipt of any Claim Notice or Seller timely gives the Notice of
Assumption to the Purchaser Indemnified Party but fails to reasonably diligently
prosecute the Third Party Claim. Assumption by the Purchaser Indemnified Party
of control of any such defense, compromise, or settlement shall not be deemed a
waiver by it of its right to indemnification hereunder. Seller may participate
in, but not control, any defense or settlement controlled by the Purchaser
Indemnified Party pursuant to this
Section 9.3(b)(ii)
, and Seller shall
bear its own costs and expenses with respect to such participation. If Seller
elects not to (or is deemed to have elected not to) assume the defense of a
Third Party Claim, and Seller dispute that the Third Party Claim is
indemnifiable under this
Article IX
, the determination of whether the
Purchaser Indemnified Party is entitled to indemnification hereunder shall be
resolved pursuant to
Section 10.7
.
(iii)
Subject to the last sentence of
Section 9.3(b)(ii)
(to the extent
applicable), after (i) any order, judgement or decree shall have been rendered,
(ii) a settlement shall have been consummated or (iii) the Purchaser Indemnified
Party and Seller shall have reached an agreement, in each case with respect to
an indemnifiable claim hereunder, the Purchaser Indemnified Party shall forward
to Seller notice of any sums due and owing by Seller pursuant to this Agreement
with respect to such matter and such sums so due and owing to the Purchaser
Indemnified Party, or any designee thereof, shall be paid to the Purchaser
Indemnified Party, or any designee thereof, in accordance with
Section
9.5
.
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9.4
Certain Limitations on Indemnification
. The maximum aggregate amount that
the Purchaser Indemnified Parties may recover from Seller for Losses arising out
of or resulting from the causes enumerated in
Section 9.1
shall be
limited to an amount equal to $4,500,000 (the
General Indemnity Cap
),
except that:
(a)
In the event of (i) any claim pursuant to Section 9.1(b) or (ii) any claim
pursuant to
Section 9.1(a)
in respect of a breach or inaccuracy of any
Fundamental Representation or Fraud, the General Indemnity Cap shall not apply
and the liability for Losses of Seller shall be limited to an amount equal to
the Final Purchase Price in respect of any indemnity claims brought pursuant to
this
Article IX
in respect thereof.
(b)
Notwithstanding anything in this Agreement to the contrary, Seller shall not be
liable to the Purchaser Indemnified Parties for indemnification under
Section
9.1(a)
until the aggregate amount of all Losses in respect of
indemnification claims arising under
Section 9.1(a)
exceeds
$25,000 (the
Threshold Amount
), and once the Threshold Amount is met,
Seller will be liable for all such indemnifiable Losses from the first dollar of
such Losses;
provided
,
however
, that such limitation shall not
shall not apply to Losses in respect of claims arising out of the breach or
inaccuracy of any Fundamental Representations.
9.5
Payments
. All amounts payable to the Purchaser Indemnified Parties
pursuant to this
Article IX
with respect to a claim for indemnifiable
Losses pursuant to
Section 9.1
shall be satisfied against Seller;
provided, however, that if any of the parties hereto obtains representation and
warranty insurance in connection with the representations and warranties set
forth in this Agreement, all amounts payable to the Purchaser Indemnified
Parties pursuant to this
Article IX
with respect to a claim for
indemnifiable Losses pursuant to
Section 9.1
shall be satisfied: (a)
first against Seller up to the Threshold Amount; (b) second against such
representation and warranty insurance policy and (c) third if there are any
unpaid indemnifiable Losses after exhaustion of clauses (a) and (b) above,
against Seller, subject to the limitations set forth in this
Article IX
.
All amounts payable to the Purchaser Indemnified Parties pursuant to this
Article IX
directly by Seller shall be paid by wire transfer of
immediately available funds, promptly, but in any event no later than no later
than three (3) days, following receipt from a Purchaser Indemnified Party of a
bill, together with all accompanying reasonably detailed back-up documentation,
for an Loss that is the subject of indemnification hereunder, unless Seller
timely objected in good faith to the claim for indemnification with respect to
such indemnifiable Loss in accordance with the provisions of this
Article
IX
.
9.6
Characterization of Indemnification Payments
. All indemnification
payments made pursuant to this Agreement shall be deemed to be and treated, to
the extent permitted by Legal Requirements, as an adjustment to the Purchase
Price for all purposes.
9.7
Exclusive Remedy
. Purchaser, on behalf of itself and the Purchaser
Indemnified Parties, acknowledge and agree that, should the Closing occur, its
and their sole and exclusive remedy with respect to any and all claims relating
to this Agreement, the transactions contemplated hereby, the Acquired Company,
its Subsidiaries and their respective assets, liabilities and businesses shall
be pursuant to the indemnification provisions set forth in this
Article
IX
. In furtherance of the foregoing, Purchaser, on behalf of itself and the
Purchaser Indemnified Parties, hereby waives, from and after the Closing, to the
fullest extent permitted under applicable Legal Requirements, any and all
rights, claims and causes of action it or its Affiliates may have against the
other party or its Affiliates arising under or based upon any Federal, state,
local or foreign statute, law, ordinance, rule or regulation or otherwise
(except pursuant to the indemnification provisions set forth in this
Article
IX
).
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ARTICLE X
GENERAL PROVISIONS
10.1
Notices
. All notices and other communications hereunder shall be in
writing and shall be deemed duly given (a) on the date of delivery if delivered
personally, by messenger service or by electronic mail, (b) on the date of
confirmation of receipt (or, the first (1st) Business Day following such receipt
if the date is not a Business Day) of transmission by facsimile, (c) on the date
of transmission if sent by email (
provided
, that such email states that
it is a notice delivered pursuant to this
Section 10.1
) or (d) on the
date of confirmation of receipt (or, the first (1st) Business Day following such
receipt if the date is not a Business Day) if delivered by a nationally
recognized courier service. All notices hereunder shall be delivered as set
forth below, or pursuant to such other instructions as may be designated in
writing by the party to receive such notice:
if to Purchaser, to:
Silicon Valley Technology Partners LLC
125 S Market Street
San Jose, CA 95113
Attention: Eric Kelly
Email: ekelly@sphere3d-overland.com
if to Seller or the Acquired Company
(prior to the Closing), to:
Sphere 3D Corp.
9112 Spectrum
Center Boulevard
San Diego, California 92123
Attention: Kurt Kalbfleisch, Chief
Financial Officer
Email:
kkalbfleisch@overlandstorage.com
Fax:
(858) 495-4267
with a copy, which shall not
constitute notice, to:
OMelveny & Myers LLP
2765
Sand Hill Road
Menlo Park, CA 94025
Attention: Warren Lazarow and Paul
L. Sieben
Telephone No.: (650) 473-2600
Facsimile No.: (650)
473-2601
Email: wlazarow@omm.com and psieben@omm.com
10.2
Interpretation
. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. When a reference is made in this Agreement to Sections,
such reference shall be to a section of this Agreement unless otherwise
indicated. For purposes of this Agreement, the words include, includes and
including, when used herein, shall be deemed in each case to be followed by
the words without limitation. The table of contents and headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement. An exception or disclosure made
in Acquired Company Disclosure Letter with regard to a representation or
warranty of the Acquired Company or Seller shall be deemed made with respect to
any other representation or warranty by such party to which such exception or disclosure is reasonably apparent. The
phrase made available in this Agreement means that the information referred to
has been posted to the online data room maintained in connection with the
transactions contemplated by this Agreement or otherwise provided to the party
if requested by the party to whom such information is provided.
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10.3
Counterparts
. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
10.4
Entire Agreement; Third-Party Beneficiaries
. This Agreement,
including the Acquired Company Disclosure Letter, together with the other
Contracts entered into or to be entered into in connection with the Share
Purchase and the other transactions contemplated hereby, (i) constitutes the
entire agreement among the parties with respect to the subject matter in this
Agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter in this
Agreement, and (ii) is not intended to confer upon any other Person any rights
or remedies hereunder, except as specifically provided herein.
10.5
Severability
. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other Persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the greatest extent possible, the
economic, business and other purposes of such void or unenforceable provision.
10.6
Specific Performance
. The parties hereto agree that irreparable
damage for which monetary damages, even if available, would not be an adequate
remedy would occur in the event that the parties hereto do not perform their
obligations under the provisions of this Agreement (including failing to take
such actions as are required of them hereunder to consummate the Share Purchase
and the other transactions contemplated by this Agreement) in accordance with
its specified terms or otherwise breach such provisions. The parties acknowledge
and agree that the parties shall be entitled to an injunction or injunctions,
specific performance or other equitable relief to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in the
courts described in
Section 10.7
without proof of damages or otherwise,
this being in addition to any other remedy to which they are entitled under this
Agreement at law or in equity, and the right of specific enforcement is an
integral part of the transactions contemplated by this Agreement and without
that right, neither Seller, the Acquired Company nor Purchaser would have
entered into this Agreement. Each of the parties hereto agrees that it will not
oppose the granting of an injunction, specific performance and other equitable
relief on the basis that the other parties hereto have an adequate remedy at law
or an award of specific performance is not an appropriate remedy for any reason
at law or in equity. The parties hereto acknowledge and agree that any party
seeking an injunction or injunctions to prevent breaches of this Agreement and
to enforce specifically the terms and provisions of this Agreement in accordance
with this
Section 10.6
shall not be required to provide any bond or other
security in connection with any such order or injunction. If, prior to the End
Date, any party brings any suit, action or proceeding, in each case in
accordance with
Section 10.7
, to prevent breaches of this Agreement and
to enforce specifically the terms and provisions hereof, the End Date shall
automatically be extended by (a) the amount of time during which such suit,
action or proceeding is pending, plus twenty (20)
Business Days or (b) such other time period established by the court presiding
over such suit, action or proceeding, as the case may be.
A-37
10.7
Governing Law; Consent to Jurisdiction
. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California, regardless of the laws that might otherwise govern under applicable
principles of conflicts of law thereof. Each of Purchaser, the Acquired Company
and Seller irrevocably submits to the exclusive jurisdiction of (a) the Superior
Courts of the State of California, Santa Clara County, and (b) the United States
District Court in Santa Clara, California, for the purposes of any suit, action
or other proceeding arising out of this Agreement, the other agreements
contemplated hereby or any transaction contemplated hereby. Each of Purchaser,
the Acquired Company and Seller agrees to commence any action, suit or
proceeding relating hereto either in the United States District Court in Santa
Clara, California or if such suit, action or other proceeding may not be brought
in such court for jurisdictional reasons, in the Superior Court of the State of
California, Santa Clara County. Each of Purchaser, the Acquired Company and
Seller further agrees that service of any process, summons, notice or document
by U.S. registered mail to such partys respective address set forth above shall
be effective service of process for any action, suit or proceeding in California
with respect to any matters to which it has submitted to jurisdiction in this
Section 10.7
. Each of Purchaser, the Acquired Company and Seller
irrevocably and unconditionally waives any objection to the laying of venue of
any action, suit or proceeding arising out of this Agreement or the transactions
contemplated hereby in (x) the Superior Court of the State of California, Santa
Clara County, or (y) the United States District Court in Santa Clara,
California, and hereby further irrevocably and unconditionally waives and agrees
not to plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum. Each of
Purchaser, the Acquired Company and Seller irrevocably waives any objections or
immunities to jurisdiction to which it may otherwise be entitled or become
entitled (including sovereign immunity, immunity to pre-judgment attachment,
post-judgment attachment and execution) in any legal suit, action or proceeding
against it arising out of or relating to this Agreement or the transactions
contemplated hereby which is instituted in any such court. The parties agree
that a final trial court judgment in any such suit, action or other proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by applicable Legal Requirement;
provided
,
however
, that nothing in the foregoing shall restrict
any partys rights to seek any post-judgment relief regarding, or any appeal
from, such final trial court judgment. Each of the parties hereto agrees that
service of process, summons, notice or document by registered mail addressed to
it at the addresses set forth in
Section 10.1
shall be effective service
of process for any suit, action or proceeding brought in any such court. The
parties agree that service of process may also be effected by certified or
registered mail, return receipt requested, or by reputable overnight courier
service, directed to the other party at the addresses set forth herein in
Section 10.1
, and service so made shall be completed when received.
10.8
Rules of Construction
. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
10.9
Assignment
. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of each of the other parties. Any purported assignment in violation of this
Section 10.9
shall be void. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
A-38
10.10
Waiver of Jury Trial
. SUBJECT TO THE LIMITATIONS IMPOSED BY APPLICABLE
LAW, EACH OF PURCHASER, THE ACQUIRED COMPANY AND SELLER HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF PURCHASER, THE ACQUIRED COMPANY OR SELLER IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.
10.11
Fees
and Expenses
. Except as set forth in this Agreement, including in
Section 6.1,
Section 6.4(a)
,
Section 8.5
and
Section 8.6
, all fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, including fees and expenses
of financial advisors, financial sponsors, legal counsel and other advisors,
shall be paid by the party incurring such expenses whether or not the Share
Purchase is consummated.
10.12
Certain Definitions
. As used in this Agreement, the following terms
shall have the meanings set forth below.
1933
Act
means the Securities Act of 1933, as amended, or any successor statute,
and the rules and regulations promulgated thereunder.
1934
Act
means the Securities Exchange Act of 1934, as amended, or any successor
statute, and the rules and regulations promulgated thereunder.
Acquired Company Material Contract
shall mean any of the following to
which the Acquired Company or any of its Subsidiaries is a party (other than a
Company Benefit Plan except as provided in clause (h) and (i) below):
(a)
all joint venture, partnership or similar Contracts;
(b)
all powers of attorney with respect to the Business or the Acquired Company;
(c)
any agreement of indemnification or any guaranty by the Acquired Company other
than any agreement providing for indemnification entered into in connection with
the sale or license of products or services in the ordinary course of business;
(d)
any Contract containing any covenant (i) limiting in any material respect the
right of the Acquired Company to engage in any line of business or compete with
any Person in any line of business or to compete with any Person or (ii)
granting any exclusive distribution rights;
(e)
any Contract relating to the disposition or acquisition by the Acquired Company
after the date of this Agreement of a material amount of assets not in the
ordinary course of business or pursuant to which the Acquired Company has any
material ownership interest in any other Person or other business
enterprise;
A-39
(f)
any Contract requiring the Acquired Company to provide to any third party
software source code owned by the Acquired Company for any product or technology
that is material to the Business;
(g)
any mortgages, indentures, guarantees, loans or credit agreements, security
agreements or other Contracts relating to Indebtedness or the borrowing of money
by, or extension of credit to, the Acquired Company in a principal amount in
excess of $250,000 that is outstanding or may be incurred on the terms thereof,
other than accounts receivables and payables in the ordinary course of business;
or
(h)
any collective bargaining agreement;
(i)
any employment agreement with any officer of the Acquired Company or any
employee of the Acquired Company that receives more than $200,000 in annual
basis and any Contract with any independent contractor or consultant who
receives annual fees in excess of $200,000;
(j)
each material distributorship, sales agency, sales representative, reseller or
marketing, value added reseller, manufacturing, original equipment
manufacturing, technology transfer, source code license or other license or
other agreement (i) pursuant to which any other person is authorized to use any
material Intellectual Property owned by the Acquired Company, other than
contracts entered in the ordinary course of business and (ii) pursuant to which
the Acquired Company or a Subsidiary is authorized to use any material
Intellectual Property owned by any other person, other than agreements for
commercial off-the-shelf software (including software as a service), agreements
with current and former employees, consultants, and contractors, non-disclosure
agreements, and licenses for Open Source Software; or
(k)
any agreement or set or series of related agreements pursuant to which the
Acquired Company receives or is to receive goods or services that, individually
or in the aggregate, are material to the operation of the Business.
Acquisition
Proposal
means, other than the transactions contemplated by this Agreement,
any offer or proposal of any arms length Third Party relating to (a) any
acquisition or purchase, direct or indirect, of assets (including securities of
any subsidiary of Seller) equal to 50.1% or more of the consolidated assets of
the Seller and its subsidiaries or of the Acquired Company and its Subsidiaries
or to which 50.1% or more of the consolidated revenues or earnings of Seller and
its subsidiaries or the Acquired Company and its Subsidiaries are attributable
(any such assets, a
Material Segment
) or 50.1% or more of any class of
equity or voting securities of the Seller, the Acquired Company or of any of
their respective subsidiaries whose assets, individually or in the aggregate,
constitute a Material Segment, (b) any take-over bid, tender offer or exchange
offer that, if consummated, would result in such Third Party beneficially owning
50.1% or more of any class of equity or voting securities of the Seller, or (c)
a merger, amalgamation, consolidation, arrangement, statutory share exchange,
business combination, sale of all or substantially all of the assets,
liquidation, dissolution or other similar extraordinary transaction involving
Seller, the Acquired Company, or any of their respective Subsidiaries whose
assets, individually or in the aggregate, constitute a Material Segment;
provided, however, that in no event shall any issuance of any securities of
Seller not to exceed 50.1% of the outstanding common shares of Seller for
capital raising purposes (the
Capital Raise
) constitute an Acquisition
Proposal.
Affiliate
means, with respect to any Person or other Person that,
directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, such Person, and the term
control (including the terms controlled by and under common control with)
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through ownership of voting securities, by Contract or otherwise.
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Asset
Transfer
means the transfer by Seller or one or more of its subsidiaries
(including the Acquired Company), and the assumption by Seller or any subsidiary
of Seller (other than the Acquired Company or any of its Subsidiaries), of the
Merged Business and the SNAP Business.
Business
means the business of the Acquired Company and its Subsidiaries as conducted as
of the date hereof, other than the Merged Business.
Business
Day
means each day that is not a Saturday, Sunday or other day on which
banking institutions located in New York, New York are authorized or obligated
by law or executive order to close.
Canadian
Securities Laws
means all applicable securities laws in the provinces and
territories of Canada and the respective instruments, rules, regulations,
written policies, blanket orders and blanket rulings under such laws.
Closing
Working Capital
means an amount equal to (a) the consolidated current
assets of the Acquired Company and its Subsidiaries as of the Closing (excluding
cash, cash equivalents, income tax receivables and deferred income taxes) minus
(b) the consolidated current liabilities of the Acquired Company and its
Subsidiaries as of the Closing (excluding sixty-five percent (65%) of the
deferred revenue, accrued bonuses (both current and prior year), any bonuses or
severance (including bonus and severance obligations of the Acquired Company or
any of its Subsidiaries) to the extent paid or agreed to be paid by Seller
(whether prior to, on or after the Closing), income tax payables, accrued
severance, state sales tax accrual, Indebtedness and any liabilities of the
Acquired Company or any of its Subsidiaries to Seller and any of its
subsidiaries (including the Acquired Company and its Subsidiaries)). A
calculation of Closing Working Capital as of December 31, 2017, is included in
Exhibit C
hereto for illustrative purposes only.
Code
means the Internal Revenue Code of 1986, as amended.
Commitments
means fully executed commitment letters and related term sheets with debt and/or
equity financing sources, pursuant to which the financing sources therein (the
Financing Sources
) have committed, subject to the terms thereof, to
lend or provide equity financing to Purchaser in an amount sufficient to pay the
Estimated Purchase Price.
Confidential
Information
shall mean all information of a confidential nature which is
not in the public domain and which relates to customers, technology, financial,
employment, manufacturing or other affairs of a business, including: (i)
information relating to the manufacture of goods, marketing of goods or
services, including without limitation customer names and lists and other
customer details, markets, sales, marketing and distribution activities,
marketing plans, sales targets, sales statistics, market share statistics,
prices, market research reports and surveys, and advertising or other
promotional materials; (ii) information relating to research and development,
product development, future projects, business strategy, business development or
planning, commercial relationships and negotiations; and (iii) any unpatented,
secret or proprietary manufacturing or research know-how, expertise, technical
or other information, including without limitation all related ideas, concepts,
methods, inventions, designs, drawings, discoveries, data, formulae, processes,
techniques and specifications, products, product plans and all formulations,
specifications and grade names of products.
Contingency
Termination Event
means the occurrence of each of the following: (a) the
execution of legally binding Commitments by the Financing Sources and Purchaser,
which shall be delivered to Seller and shall be in a form reasonably
acceptable to Seller, (b) the execution and delivery by Purchaser to Seller of a
written irrevocable waiver in a form reasonably acceptable to Seller pursuant to
which Purchaser shall irrevocably waive the condition to Closing set forth in
Section 7.3(f)
and (c) an executed certificate delivered to Seller by
Purchaser, making the representations set forth in
Exhibit D
.
A-41
Contract
means any written, oral or other agreement, contract, subcontract, settlement
agreement, lease, instrument, note, warranty, purchase order, license,
sublicense, or commitment that is legally binding, as in effect as of the date
hereof.
CSA Filings
means any document filed by Seller on SEDAR in compliance
with applicable Canadian Securities Laws since the filing of the 20-F on SEDAR.
Employee
shall mean any employee, officer, director, independent contractor or consultant
of or to the Acquired Company or, if such person has provided or is providing
services to the Business, of or to Seller or another subsidiary of Seller.
Expense
Reimbursement
means the reasonable and documented out-of-pocket expenses
incurred by Purchaser and the Financing Sources in connection with the
negotiation, execution and performance of this Agreement and the transactions
contemplated hereby;
provided
,
however
, that in no event shall the
amount of the Expense Reimbursement exceed $350,000 plus any such expenses owed
to Cooley LLP.
Fairness Opinion
means the opinion of Roth Capital Partners, LLC to the
effect that, as of the date of such opinion, the Purchase Price to be received
by Seller pursuant to this Agreement is fair, from a financial point of view, to
Seller.
Financing
means the debt and/or equity financing of Purchaser in an
amount equal to or greater than the Estimated Purchase Price obtained by
Purchaser for the purpose of paying the Estimated Purchase Price and
consummating the Share Purchase.
Fraud
means an intentional or willful misrepresentation of a material fact with an
intent to deceive with respect to the representations and warranties set forth
in
Article II
or
Article III
hereof, which constitutes common law
fraud under the laws of the State of Delaware.
Fundamental
Representations
means the representations and warranties set forth in
Section 2.1
,
Section 2.2
,
Section 2.3
,
Section
3.1
,
Section 3.2
and
Section 3.5
.
GAAP
means United States generally accepted accounting principles.
Governmental
Entity
means any supranational, national, state, municipal, local or
foreign government, any instrumentality, subdivision, court, administrative
agency or commission or other governmental authority or instrumentality.
Indebtedness
means, of any Person, without duplication, the principal, accreted value,
accrued and unpaid interest, prepayment and redemption premiums or penalties
(including breakage costs, penalties and fees), if any, unpaid fees or expenses
and other monetary obligations in respect of (a) all indebtedness of such Person
for borrowed money or for the deferred or unpaid purchase price of property or
services, (b) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument or commercial paper, (c) all
deferred obligations of such Person to reimburse any bank or other Person in
respect of amounts paid or advanced under a letter of credit, surety bond,
performance bond or other instrument, (d) all Indebtedness of others guaranteed,
directly or indirectly, by such Person or as to which such Person has an obligation (contingent or
otherwise) that is substantially the economic equivalent of a guarantee, (e) all
obligations of such Person under equipment financing or capital leases, and (f)
all Indebtedness of others that is guaranteed by such Person or secured by (or
for which the holder of such obligation has an existing right, contingent or
otherwise, to be secured by) any Lien on any property or assets of such Person
(whether or not such obligation is assumed by such Person).
A-42
Intellectual
Property
means all worldwide common law and statutory rights in, arising
out of, or associated with: (a) patents, patent applications, patent disclosures
and inventions (whether or not patentable and whether or not reduced to
practice); (b) trademarks, service marks, trade dress, trade names, corporate
names, logos, slogans and Internet domain names, together with all goodwill
associated with each of the foregoing; (c) copyrights and copyrightable works;
(d) registrations, applications and renewals for any of the foregoing; and (e)
proprietary computer software (including but not limited to data, data bases and
documentation).
Knowledge
of Purchaser
means the knowledge of the members of the Board of Directors
of Purchaser and the officers of Purchaser, after a reasonable due inquiry.
Knowledge
of Seller
means the knowledge of the members of the Seller Board and the
officers of Seller, after a reasonable due inquiry.
Legal
Requirements
means any federal, state, provincial, local, municipal,
foreign or other law, statute, constitution, principle of common law,
resolution, ordinance, code, Order, rule, regulation, ruling or requirement
issued, enacted, adopted, promulgated, implemented or otherwise put into effect
by or under the authority of any Governmental Entity.
Lien
means any mortgage, lien, pledge, charge, security interest, encumbrance or
restriction of any kind in respect of such asset;
provided
,
however
, that the term Lien shall not include (i) statutory liens
for Taxes, which are not yet due and payable or are being contested in good
faith by appropriate, (ii) statutory or common law liens to secure landlords,
lessors or renters under leases or rental agreements confined to the premises
rented, (iii) deposits or pledges made in connection with, or to secure payment
of, workers compensation, unemployment insurance, old age pension or other
social security programs mandated under applicable Legal Requirements, (iv)
statutory or common law liens in favor of carriers, warehousemen, mechanics and
materialmen to secure claims for labor, materials or supplies incurred in the
ordinary course of business, (v) restrictions on transfer of securities imposed
by applicable securities laws, (vi) licenses under Intellectual Property granted
to third persons and (vii) liens which are not material in character, amount or
extent, and which do not materially detract from the value, or materially
interfere with the present use of, the property subject thereto or affected
thereby.
Losses
means any and all damages, losses, charges, liabilities,
proceedings, diminution in value, payments, judgments, settlements, assessments,
deficiencies, Taxes, interest, penalties, and reasonable and documented
out-of-pocket costs and expenses (including reasonable and documented
out-of-pocket attorneys fees);
provided
,
however
, that Losses
shall not include any indirect, special, consequential or punitive damages, lost
profits, or damages or other Losses based on any multiple of EBITDA (earnings
before interest, taxes, depreciation and amortization) or based on any other
financial metric (whether trailing, forward or otherwise), except to the extent
actually awarded to a third party in a Third Party Claim.
Material Adverse Effect
means any event, change, effect or circumstance
that (a) is or would reasonably be expected to be, either individually or in the
aggregate, materially adverse to the properties, assets, business, operations,
results of operations or financial condition of the Business as a whole or (b)
would prevent or materially alter or delay Sellers or the Acquired Companys
ability to consummate the Share Purchase;
provided
,
however
, that in
determining whether a Material Adverse Effect has occurred, there shall be
excluded any event, change, effect, circumstance or development relating to or
arising in connection with (a) any action required to be taken or prohibited
from being taken pursuant to the terms and conditions of this Agreement or at
the request of Purchaser; (b) changes affecting the industry in which the
Business operates generally or the economy of the United States or any foreign
market where the Business has sales generally (provided in each case that such
changes do not have a unique or materially disproportionate impact on the
Business); (c) changes attributable to conditions (or changes after the date
hereof in such conditions) in the securities markets, credit markets, currency
markets or other financial markets in the United States or any other country;
(d) hostilities, acts of war or terrorism or any material escalation of any such
hostilities, acts of war or terrorism existing as of the date hereof or any acts
of God or comparable events; (e) changes in GAAP or Legal Requirements; (f) the
failure of the Acquired Company or the Business to meet any financial or other
projections for any period ending after the date of this Agreement; or (g)
changes or effects, to the extent attributable to the announcement or pendency
of the transactions contemplated by this Agreement (including any disruption in,
or termination or modification of, supplier, distributor, partner or similar
relationships or loss of employees).
A-43
Merged
Business
means the businesses of Unified ConneXions, Inc. (
UCX
)
and HVE ConneXions, LLC (
HVE
), each as conducted immediately prior to
the merger of UCX and HVE into the Acquired Company, and as such businesses are
currently conducted, including the provision of information technology
consulting services and hardware solutions around cloud computing, data storage
and server virtualization to corporate, government, and educational
institutions.
MI
61-101
means Multilateral Instrument 61-101
Protection of Minority
Security Holder in Special Transactions
.
Minority
Shareholders
means all Seller Shareholders other than: (i) interested
parties (as defined in MI 61-101); (ii) any related party (as defined in MI
61-101) of an interested party, unless the related party meets that
description solely in its capacity as a director or senior officer of one or
more persons that are neither interested party nor issuer insiders of the
Company; and (iii) any person that is a joint actor (as defined in MI 61-101)
with any of the foregoing.
Misrepresentation
has the meaning specified in the Securities Act (Ontario).
Order
means any order, judgment, injunction, award, decree or writ adopted or imposed
by, including any consent decree, settlement agreement or similar written
agreement with, any Governmental Entity.
Person
means any individual, corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, member, partner, estate, trust, company (including any limited
liability company or joint stock company), firm or other enterprise,
association, organization, entity or Governmental Entity.
Public
Filings
means the CSA Filings and the SEC Filings.
SEC
Filings
means Sellers most recent Annual Report on Form 20-F for the
fiscal year ended December 31, 2016 (the
20-F
), and all other reports
filed by Seller pursuant to Sections 13(a), 13(e), 14 and 15(d) of the 1934 Act
since the filing of the 20-F.
Seller
Shareholders
means the holders of common shares of Seller.
A-44
Seller
Working Capital
means an amount equal to (a) the consolidated current
assets of Seller and its subsidiaries as of the determination of the Final
Purchase Price pursuant to
Section 1.3
(excluding income tax receivables
and deferred income taxes) minus (b) the consolidated total liabilities of
Seller and its subsidiaries as of the determination of the Final Purchase Price
pursuant to
Section 1.3
(including all liabilities, whether current or
otherwise, in connection with Indebtedness of Seller and costs and expenses of
Seller in connection with the evaluation, negotiation, execution and performance
of this Agreement).
Shares
has the meaning set forth in the Recitals.
SNAP
Business
means the SNAP network attached storage business and its related
Intellectual Property.
Special
Committee
means the special committee of independent directors of the
Seller Board comprised of Duncan McEwan, Vic Mahadevan and Cheemin Bo-Linn.
Special
Meeting
means the special meeting of Seller Shareholders, including any
adjournment or postponement of such special meeting in accordance with the terms
of this Agreement, to be called and held to consider the Transaction Resolution
and for any other purpose as may be set out in the Proxy Statement and agreed to
in writing by Seller and Purchaser.
Subsidiary
means any Person (a) of which the Acquired Company owns directly or indirectly
fifty percent (50%) or more of the equity interest in such Person or (b) of
which (or in which) an amount of the voting securities, other voting ownership
or voting partnership interests of which is sufficient to elect at least a
majority of its board of directors or other governing body (or, if there are no
such voting interests, more than fifty percent (50%) of the equity interests of
which) is directly or indirectly owned or controlled by the Acquired Company, or
(c) in which the Acquired Company has the contractual or other power to
designate a majority of the board of directors or other governing body.
Superior
Proposal
means a bona fide, written Acquisition Proposal for at least a
majority of the outstanding Shares or the outstanding common shares of Seller or
at least a majority of the consolidated assets of Seller and its subsidiaries or
the Acquired Company and its Subsidiaries that the Seller Board determines in
good faith, after taking into account all relevant terms and conditions of such
Acquisition Proposal (including the timing and likelihood of consummation of
such proposal, taking into account all financial, legal, regulatory and other
aspects of the proposal), is more favorable to the Seller Shareholders (other
than Eric Kelly) from a financial point of view than the Share Purchase (taking
into account any written proposal by Purchaser to amend the terms of this
Agreement pursuant to
Section 6.11(f)
).
Target
Working Capital
means $4,000,000.
Tax
Return
means any return, report or similar filing (including the attached
schedules, any elections, declarations, schedules or attachments thereto, and
any amendment thereof) required to be filed with respect to Taxes.
Taxes
means any and all federal, state, provincial, local, foreign, or other taxes,
charges, fees, imposts, levies or other assessments of any kind (together with
any and all interest, penalties, additions to tax and additional amounts imposed
with respect thereto) imposed by any Governmental Entity, including taxes on or
with respect to income, franchises, windfall or other profits, gross receipts,
property, sales, use, capital stock, payroll, employment, unemployment, capital,
transfer, inventory, license, social security, severance, stamp, occupation,
property, social security, estimated taxes, customs duties, workers
compensation or net worth, and taxes in the nature of excise, withholding, ad
valorem or value added.
A-45
Third
Party
means any Person, including as defined in Section 13(d) of the 1934
Act, other than Purchaser or any of its Affiliates.
Transaction
Resolution
means the resolution of the Seller Shareholders approving the
Share Purchase to be considered at the Special Meeting, which shall,
inter
alia
, constitute a special resolution in accordance with, and comply with
the requirements of, subsections 184(3) to 184(8) of the
Business
Corporations Act
(Ontario).
Defined Term
|
Section
|
20-F
|
10.12
|
Accounting Firm
|
1.3(d)
|
Acquired Company
|
Preamble
|
Acquired Company Charter
Documents
|
2.1(b)
|
Acquired Company
Disclosure Letter
|
Article II
|
Adverse Recommendation
Change
|
6.11(a)(ii)
|
Agreement
|
Preamble
|
Capital Raise
|
10.12
|
Claim Notice
|
9.3(b)
|
Closing
|
1.2
|
Closing Date
|
1.2
|
Closing Statement
|
1.3(c)
|
Company Benefit Plan
|
2.13(a)
|
Contemplated Transactions
|
1.2
|
Direct Claim
|
9.3(a)
|
Dispute Notice
|
9.3(a)
|
Disputed Line Items
|
1.3(d)
|
End Date
|
8.1(b)
|
Environmental Law
|
2.16
|
ERISA
|
2.13(a)
|
ERISA Affiliate
|
2.13(d)
|
Estimated Closing
Statement
|
1.3(b)
|
Estimated Purchase Price
|
1.3(b)
|
Final Purchase Price
|
1.3(f)
|
Financials
|
6.10
|
Financing Documents
|
6.1(b)
|
Financing Sources
|
10.12
|
General Indemnity Cap
|
9.4
|
HVE
|
10.12
|
Indemnity Notice
|
9.3(a)
|
Intellectual Property
Rights
|
2.8(e)
|
Material Segment
|
10.12
|
Notice of Assumption
|
9.3(b)
|
Notice of Disagreement
|
1.3(d)
|
Open Source Materials
|
2.8(f)
|
Pre-Closing Director
|
6.1(a)
|
Proxy Statement
|
3.6
|
Purchase Price
|
1.3
|
Purchaser
|
Preamble
|
Purchaser Indemnified
Party
|
9.1
|
A-46
Purchaser
Material Adverse Effect
|
4.1
|
Registered
IP
|
2.8(c)
|
SEC
|
Article
II
|
Seller
|
Preamble
|
Seller
Acquisition Agreement
|
6.11(f)
|
Seller
Board
|
3.2(a)
|
Seller
Board Recommendation
|
3.2(e)
|
Seller
Material Adverse Effect
|
3.1
|
Seller
Representatives
|
6.11(a)(i)
|
Seller
Shareholder Approval
|
3.2(a)
|
Share
Purchase
|
1.1
|
Shares
|
Recitals
|
Shortfall
Amount
|
1.3(f)(ii)
|
Statement
of Assets and Liabilities
|
2.5(a)
|
Statement
of Assets and Liabilities Date
|
2.5(a)
|
Termination
Fee
|
8.6(a)
|
Third
Party Claim
|
9.3(b)
|
Threshold
Amount
|
9.4(b)
|
UCX
|
10.12
|
*****
A-47
IN
WITNESS WHEREOF, the parties hereto have caused this Share Purchase Agreement to
be executed by their duly authorized respective officers as of the date first
written above.
SILICON VALLEY TECHNOLOGY PARTNERS LLC
|
By:
|
/s/ Eric Kelly
|
|
Name:
|
Eric Kelly
|
|
Title:
|
Chief Executive Officer
|
OVERLAND STORAGE, INC.
|
By:
|
/s/ Peter Tassiopoulos
|
|
Name:
|
Peter Tassiopoulos
|
|
Title:
|
Director
|
SPHERE 3D CORP.
|
By:
|
/s/ Peter Tassiopoulos
|
|
Name:
|
Peter Tassiopoulos
|
|
Title:
|
Director
|
A-48
Annex B: Transaction Resolution
BE IT RESOLVED as a special resolution that:
|
1.
|
the Company is hereby authorized to complete the sale of
the shares of Overland Storage, Inc., which may be deemed to constitute a
sale of substantially all assets of Sphere 3D in accordance with Section
184(3) of the Business Corporations Act (Ontario), as more particularly
described in the Companys proxy statement dated on or around February 26,
2018;
|
|
|
|
|
2.
|
any officer or director of the Company is hereby
authorized and directed for and on behalf of the Company to execute or
cause to be executed and to deliver or cause to be delivered all such
other documents and instruments and to perform or cause to be performed
all such other acts and things as such person determines may be necessary
or desirable to give full effect to the foregoing resolution and the
matters authorized thereby, such determination to be conclusively
evidenced by the execution and delivery of such document or instrument or
the doing of any such act or thing; and
|
|
|
|
|
3.
|
notwithstanding the foregoing, the directors of the
Company may, without further approval of the shareholders of the Company,
revoke this special resolution at any time.
|
B-1
Annex C: Consent of Roth Capital Partners, LLC
February 26, 2018
Special Committee of the Board of
Directors
Sphere 3D Corp.
125 South Market St.
San Jose, CA 95113
To the Special Committee of the Board of Directors of Sphere 3D
Corp.:
We refer to the fairness opinion of our firm, dated February
19, 2018 (the
Fairness Opinion
), included as Annex D to the proxy
statement and management information circular, dated on or about February 26,
2018 (the
Proxy Statement
), of Sphere 3D Corp. (the
Company
)
which we prepared for the Special Committee of the Board of Directors of the
Company in connection with the Share Purchase (as defined in the Proxy
Statement).
We hereby consent to the filing of the text of the Fairness
Opinion with the applicable securities regulatory authorities in the United
States and Canada, to the references to our firm name and to the references to
the Fairness Opinion contained in the Proxy Statement, and to the inclusion of
the text of the Fairness Opinion as Annex D to the Proxy Statement.
(s)
Roth Capital Partners, LLC
Roth Capital Partners, LLC
C-1
Annex D: Fairness Opinion of Roth Capital Partners,
LLC
February 19, 2018
Special Committee of the Board of Directors
Sphere 3D Corp.
125 S. Market St.
San Jose, CA 95113
Dear Sirs:
The special committee of the board of directors (the Special
Committee) of Sphere 3D Corp. (the Company) has requested the opinion of Roth
Capital Partners, LLC (Roth, we, or our) as to the fairness, from a
financial point of view, of the Consideration (as defined below) to be received
by the Company pursuant to the terms of the proposed Share Purchase Agreement
(the SPA) to be entered into by and among the Company, the Target (as defined
below) and Silicon Valley Technology Partners, LLC (the Purchaser).
Capitalized terms used herein have the respective meanings ascribed thereto in
the draft of the SPA, dated February 16, 2018, provided to us by the Company
(the Draft SPA).
Pursuant to the terms of the Draft SPA, the Company shall sell,
assign, transfer and convey to the Purchaser, and the Purchaser shall purchase
and acquire from the Company, all of the shares of Overland Storage, Inc. (the
Target), free and clear from all Liens, in consideration for payment of the
Purchase Price (the Consideration). The transactions contemplated by the Draft
SPA are referred to herein as the Transaction.
In connection with our review of
the proposed Transaction, and in arriving at our opinion, we have:
|
(i)
|
reviewed the Draft SPA;
|
|
(ii)
|
reviewed certain information, including financial
forecasts, relating to the business, earnings, cash flow, assets,
liabilities and prospects of the Target and the Business that were
furnished to us by management of the Company;
|
|
(iii)
|
conducted discussions with members of senior management
of the Company concerning the matters described in clause (ii);
|
|
(iv)
|
conducted discussions with members of Ernst & Young
and Duff & Phelps regarding each of their work on behalf of the
Company;
|
|
(v)
|
reviewed publicly available information relating to the
Company and the Target;
|
|
(vi)
|
reviewed the financial terms, to the extent publicly
available, of certain acquisitions that we deemed relevant;
|
|
(vii)
|
reviewed the financial terms, to the extent publicly
available, of certain public companies that we deemed relevant;
and
|
|
(viii)
|
performed such other analyses, including detailed
financial analyses, and considered such other factors as we deemed
appropriate for the purpose of reviewing the proposed Transaction and
arriving at our opinion.
|
We have relied upon and assumed, without assuming liability or
responsibility for independent verification, the accuracy and completeness of
all information that was publicly available or was furnished, or otherwise made
available, to us or discussed with or reviewed by or for us. We have further
assumed that the financial information provided has been prepared on a
reasonable basis in accordance with industry practice, and that management of
the Company is not aware of any information or facts that would make any
information provided to us incomplete or misleading. Without limiting the
generality of the foregoing, for the purpose of this opinion, we have assumed
that with respect to financial forecasts, estimates and other forward-looking
information reviewed by us, that such information has been reasonably prepared
based on assumptions reflecting the best currently available estimates and
judgments of the Companys management as to the expected future results of
operations and financial condition of the Target. We express no opinion as to
any such financial forecasts, estimates or forward-looking information or the
assumptions on which they were based. With respect to the financial forecasts
provided to and examined by us, we note that projecting the future results of
any company, partnership, venture or asset is inherently subject to uncertainty.
In connection with our opinion, we have assumed and relied
upon, without independent verification, the accuracy and completeness of all of
the financial, legal, regulatory, tax, accounting and other information provided
to, discussed with or reviewed by us. Our opinion does not address any legal,
regulatory, tax or accounting issues. In arriving at our opinion, we have
assumed that the executed SPA will be in all material respects identical to the
Draft SPA reviewed by us. Furthermore, Roth is not responsible for, and this opinion does not reflect,
any changes to the terms of the Draft SPA and related documents that may be
included in the executed SPA.
D-1
We have relied upon and assumed, without independent
verification, that (i) the representations and warranties of all parties set
forth in the SPA and all related documents and instruments that are referred to
therein are true and correct, (ii) each party to the SPA will fully and timely
perform all of the covenants and agreements required to be performed by such
party, (iii) the Transaction will be consummated pursuant to the terms of the
SPA without any waiver or amendments thereto or delay of any terms or conditions
thereof, and (iv) all conditions to the consummation of the Transaction will be
satisfied without waiver by any party of any conditions or obligations
thereunder. Additionally, we have assumed that in connection with the receipt of
all the necessary regulatory or other approvals and consents required for the
proposed Transaction, no delays, limitations, conditions or restrictions will be
imposed that would have a material adverse effect on the Company, the Target or
the contemplated benefits of the Transaction.
In arriving at our opinion, we have not performed any
appraisals or valuations of any specific assets or liabilities (fixed,
contingent, or other) of the Company or the Target, and we have not been
furnished or provided with any such appraisals or valuations. Without limiting
the generality of the foregoing, we have undertaken no independent analysis of
any pending or threatened litigation, regulatory action, possible unasserted
claims or other contingent liabilities, to which the Company, the Target or any
of their respective affiliates is a party or may be subject, and at the
direction of the Special Committee and with its consent, our opinion makes no
assumption concerning, and therefore does not consider, the possible assertion
of claims, outcomes or damages arising out of any such matters (other than to
the extent set forth in the Draft SPA or the financial information provided to
us by or on behalf of the Company).
This opinion is necessarily based upon the information
available to us and facts and circumstances as they exist and are subject to
evaluation on the date hereof; events occurring after the date hereof could
materially affect the assumptions used in preparing this opinion. We are not
expressing any opinion herein as to the price at which the Companys common
shares may trade following announcement of the Transaction or at any future
time. We have not undertaken to reaffirm or revise this opinion or otherwise
comment upon any events occurring after the date hereof and expressly disclaim
any undertaking or obligation to advise any person of any change in any fact or
matter affecting our opinion.
We have been engaged by the Special Committee to act as its
financial advisor and, under certain circumstances, we will be entitled to
receive certain fees from the Company for providing such services, including the
provision of this opinion. In the two years prior to the date hereof, we have
provided financing services and financial advisory services to the Company and
have received fees in connection with such services. Roth may also seek to
provide financial advisory and financing services to the Company and its
affiliates in the future and would expect to receive fees for the rendering of
such services. As part of the financing and financial advisory services
previously rendered to the Company, Roth has a right of first refusal on certain
future investment banking services, which right it has contractually agreed to
waive as a condition to providing this opinion. As of the date of this opinion,
we hold 200 common shares of the Company and warrants to acquire approximately
73,367 common shares of the Company at $5.00 per share.
We have acted as financial advisor to the Special Committee in
connection with the Transaction and will receive a fee for our services, which
fee is contingent upon the public announcement of the Transaction insofar as we
will be paid in the Companys common shares, which common share payment will not
be released to us until the Transaction is formally announced. We expect to
receive additional common shares of the Company in the event that our
disposition of those shares is less than our fee and expenses for this opinion.
The Company has agreed to indemnify us against certain liabilities and reimburse
us for certain expenses in connection with our services. In the ordinary course
of business, we and our affiliates may acquire, hold or sell, for our and our
affiliates own accounts and for the accounts of customers, equity, debt and
other securities and financial instruments (including bank loans and other
obligations) of the Company and the other parties to the Transaction, and,
accordingly, may at any time hold a long or a short position in such securities.
Consistent with applicable legal and regulatory requirements,
Roth has adopted policies and procedures to establish and maintain the
independence of our research departments and personnel. As a result, our
research analysts may hold views, make statements or investment recommendations
and/or publish research reports with respect to the Company and/or the
Transaction that differ from the views of our investment banking personnel.
This opinion has been prepared for the information of the
Special Committee for its use in connection with its consideration of the
Transaction and is not intended to be and does not constitute a recommendation
to any stockholder of the Company as to how such stockholder should vote on any
matter relating to the Transaction or any other matter. Except with respect to
the inclusion of this opinion in the prospectus/proxy statement or other filings
with the U.S. Securities and Exchange Commission relating to the Transaction in
accordance with our engagement letter, this opinion shall not be disclosed,
referred to or published (in whole or in part), nor shall any public references to us be
made, without our prior written approval. This opinion has been approved for
issuance by Roths Fairness Opinion Committee.
D-2
This opinion addresses only the fairness, from a financial
point of view, to the Company of the Consideration and does not address the
relative merits of the Transaction or any alternatives to the Transaction, the
Companys underlying decision to proceed with or effect the Transaction, or any
other aspect of the Transaction. This opinion does not address the fairness of
the Transaction to the holders of any class of securities, creditors or other
constituencies of the Company. This opinion is not a valuation of the Company or
the Target or their assets or any class of their securities. We are not experts
in, nor do we express an opinion on, legal, tax, accounting or regulatory
issues. In addition, we express no view or opinion as to the fairness (financial
or otherwise) of the amount, nature or any other aspect of any compensation to
be paid or payable to any of the officers, directors or employees of the
Company, or any class of such persons, in connection with the Transaction.
Based upon and subject to the foregoing, we are of the opinion,
as of the date hereof, that the Consideration to be received by the Company
pursuant to the Draft SPA is fair, from a financial point of view, to the
Company.
Sincerely,
/s/
Roth Capital Partners, LLC
ROTH CAPITAL PARTNERS, LLC
D-3
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